COLUMN ONE : Capitalism Faces Wall in Poland : Privatization is hindered by lack of commercial space, uncaring workers, shortages and worthless currency. And the phones don't work.


For the past two decades, Antoni Potocki has been daring, deep inside, to harbor dreams about the Polish Miracle--the time when Poland would burst forward into economic prosperity the way West Germany did in the 1960s and Hungary is beginning to do today.

Now that Poland's new Solidarity government is preparing to shift from a Communist-style economy toward a market-oriented system, Potocki may finally be about to get his chance. In an abandoned stable behind his house, Potocki is overseeing construction of a prototype metal farm wagon that he hopes to sell all over the country.

"I have always thought about making business," says Potocki, whose vocation is mushroom farming. Farm wagons are badly needed in Poland's backward, flashback-to-the-1940s economy.

But Potocki is encountering serious problems that illustrate in microcosm what the country will face in moving toward a new free-market economic order.

His factory is in a stable because leasing a new building is virtually impossible. Almost all commercial real estate here is owned by the state, and the few available spaces are parceled out to cronies of the entrenched bureaucracy. Obtaining clearance even for a back yard mom-and-pop business requires the approval of a series of separate bureaucratic offices, usually with months of delay.

And just last month, after scouring the entire area in search of structural steel, Potocki encountered another snag. The local state-owned steel mills--all steel made in Poland is produced by the government--are refusing to sell him the beams and pipe he needs to manufacture his farm wagons without months of costly extra waiting.

"The supply warehouses all have two order desks--one for buyers from state-owned companies and another for private customers," Potocki says. "If you're buying on behalf of another state-run enterprise, you get as much as you want, and they let you buy on credit. But if you come in on your own, they only thumb their noses at you--and they insist that you pay in advance besides."

Potocki's experiences reflect only a small sampling of the staggering difficulties this country faces in privatizing its centrally planned economy. After 40 years of Communist rule, the economy is in a straitjacket that most Westerners find eye-popping.

The banking system barely functions. The Polish currency, the zloty, is almost worthless internationally and cannot be used to buy badly needed imports. Poland's business laws do not recognize private ownership or any of the other legal mechanisms that enable capitalism to work.

The tax code discourages earnings. The Polish accounting system provides no way to cope with the Western concept of profits. Potocki says he keeps two sets of books, one to satisfy Polish tax laws and another "American version" that enables him to tell where his business really stands.

Even if Potocki could get past these formidable barriers, there are others: Poland's distribution system is so inefficient that he will be unable to expand without financing his own network of delivery trucks. Equipment is in short supply and usually in disrepair. Shortages abound. Spare parts, even for vehicles, invariably are hard to get. Advertising is almost impossible and in most cases is still illegal. Workers, soured by years under a system without any incentives, are uncaring and unproductive.

Poland's ancient, French-made telephone system is almost useless by Western standards. Merely getting through on a local call can take 12 to 15 tries and up to 40 minutes' delay; wrong numbers and cut-offs are normal. Overseas calls can take hours to complete. Potocki recently had to send a routine telefax to a West German firm to order a customized machine he needed; he trimmed an eight-hour wait to two minutes only because he had a friend in a local telephone exchange.

"What can I say?" he says with a shrug and a sheepish grin. "Polish realities."

Like most Poles, leaders of the new Solidarity government are keenly aware of these realities and are preparing to make changes as rapidly as possible. Krzysztof Lis, the professorial, pipe-smoking undersecretary of finance, plans to unveil a new "privatization" proposal soon that seeks to overhaul the current system and make it easier for private enterprises like Potocki's to operate.

Legislation to break the monopoly power now held by state-owned corporations and force them to act like private businesses will follow. Eventually, many of the larger state-owned enterprises, such as steel mills and coal mines, may be converted to private firms as well.

"A lot of people are going to start their own businesses," insists Alojzy Szablewski, the balding, stocky deputy to Lech Walesa, president of the national Solidarity union at Gdansk's sprawling Lenin Shipyard. "When all these small companies start operation, there won't be any problem."

Not everyone is so sanguine. Alan Stoga, chief international economic analyst for Kissinger Associates, a New York consulting firm, says the problem "is not how you convert from a socialist economy to a market economy, it is how you convert from a collapsed socialist economy. I'm pretty pessimistic."

Right now, according to public opinion polls, most Poles say they are ready to take the plunge. "The country has been ruined under the previous system," says Marianna Dobrowska, a Warsaw housewife. "We have no choice but to go ahead now."

Some analysts believe Dobrowska and other Poles may not fully realize what lies ahead.

The government has already sharply devalued the zloty, and it hopes soon to make the zloty easily convertible into Western currencies. That may promote trade but, in combination with the removal of price controls, it is also fueling a runaway inflation that has reached 54% a month.

And the planned conversion of state-run enterprises into Western-style businesses--combined with sharp cutbacks in state subsidies throughout the economy--are bound to cause widespread unemployment and social disruption on a scale unknown since the end of World War II.

The outdated Lenin Steel Mill here, for example, employs 30,000 workers to turn out 5 million tons of steel a year; a similar-sized plant in South Korea uses only a small fraction of that number of workers. Similar candidates for employment cutbacks exist all over Poland.

For those who cannot be absorbed into private-sector jobs, the government is working on legislation to provide a "safety net"--programs such as unemployment benefits, food stamps and welfare. Such programs did not exist under the Communist government because Marxism never officially recognized that anyone could be unemployed.

While the new government puts the final touches on its proposal to privatize the economy, it has halted earlier efforts to convert state-run enterprises to private ownership. Soviet-era managers of existing state-owned corporations, such as the Iglopol agribusiness enterprise, were "selling" the huge factories and mills to themselves--invariably at bargain prices.

"It was a problem, and we had to solve it," Lis says matter-of-factly.

The experience forced Lis and other top Solidarity policy-makers to grapple with a question never faced in Western societies: To whom should state-owned enterprises be sold--the current managers, who have the only experience in running such large corporations, to foreign investors, or to workers and ordinary citizens?

The answer, still not fully worked out, may well be all of the above. The state-owned enterprises that will be offered for sale first are those whose products can be exported and earn hard currency, and whose management and workers are prepared to go ahead.

The earlier, piecemeal effort at privatization showed how difficult the process can be.

Marek Ogrodzki, a Warsaw entrepreneur, was managing a state-owned electronic components manufacturing firm earlier this year. Like Remington's Victor Kiam in American television commercials, Ogrodzki liked the idea so much, he bought the company.

But not without some problems. After a year and a half of hard bargaining and interference from a half-dozen ministries, Ogrodzki found there was nowhere to borrow sufficient capital. He finally mortgaged his house and a vacation villa and agreed to pay sky-high rent to the state for the factory's production facilities.

Eight months after finally taking the plant over, Ogrodzki has pared back the work force, modernized some production facilities and laid plans for a series of new products he thinks will sell better in Western markets.

"I am much better able to do what's needed than I was under the old system," he says. "There are no papers on my desk, no ministries and workers' councils to deal with and no political party operatives around the plant." Best of all, the plant finally is beginning to make a real profit.

Some of the most graphic accounts of the Polish economy come from those who have viewed it with Western eyes--the managers of U.S.- and European-based companies that have established branches or businesses here.

Ewa Meczynska's travail began last spring when she agreed to set up Polish operations for Budget Rent-a-Car. As a Polish national with initial approval from the Warsaw government, Meczynska thought she would have it relatively easy. That, she says, was only her first mistake.

When Meczynska sought office space at the airport, the Aviation Bureau wanted to charge more rent for a small room than her company was paying for its entire franchise. She finally had to settle for a tiny counter, too small to hold both a computer terminal and a coffee urn.

She found an abandoned auto repair shop for a second facility, but the owner wanted double the rent that her firm currently pays for first-class office space in New York. She bargained him down but had to pay a year's rent in advance.

Furnishing the space was no easier. The only accessible office furniture factory--state-owned, of course--was unable to sell her a desk without a minimum three-year wait. Instead, she bought two safes--the only thing the factory could deliver that week--and scoured around for a used desk later. The safes now serve as closets for odds and ends.

Uniforms were almost impossible to get. She had 14 workers, but the only nearby necktie company--another state-owned monopoly--refused to sell her fewer than 1,500 custom-colored ties. She finally sent to England for the 14 ties.

Obtaining posters and advertising was a chore. Only one of Warsaw's half-dozen newspapers would try to provide the bright orange printing that Budget Rent-a-Car specifies for its advertising worldwide, and the closest it could come was red-violet. After Meczynska ordered her posters from West Germany, the Polish airline refused to deliver them on grounds that it was all booked up for the next year.

A lighted sign she ordered last May for installation on the airport road still has not arrived. No matter: Airport authorities say its roadside site is too close to a military installation.

But Meczynska's worst problem may have been the telephones. She couldn't beg, borrow or even steal them until her boss in New York complained personally to top Polish authorities. Even then, Poland's telephone installers mistakenly connected her telex machine to her phone lines.

"I'm losing my patience, I must tell you," she says, with a sigh.

Zbigniew (Dick) Niemczycki, director of European affairs for Curtis International, a U.S.-based multinational, says one of the biggest challenges of privatization will be finding able managers.

Under the Communist system, managers of state-owned enterprises were party-favored bureaucrats who had no incentive to turn a profit. "These guys were the spenders," Niemczycki says.

His prescription: Recruit Western-trained managers from abroad for the first several years. "Without Western-style management," he fears, "there's no way that this ever can succeed."

The second-biggest problem may be Polish labor. With firings impossible under the system of state-run companies, workers have become lethargic and virtually incapable of working up to Western standards.

Haile Aguilar, who manages the new Warsaw Marriott hotel in Warsaw, solved the problem by starting from scratch, hiring young people who had not been employed in hotels here previously.

"We figured it would be easier to train them ourselves from the start than to try to get them to unlearn the work attitudes they had before, and we were right," Aguilar says. Service at the Marriott is conspicuously better than at Warsaw's second-most-recommended luxury hotel.

Polish policy-makers seem unconcerned about the pace of privatization. Finance Minister Leszek Balcerowicz has been telling audiences that the government will move "quickly, but not hastily."

Adds Marek Boroski, the vice minister of internal markets: "The direction is clear--the speed of the march will be decided as we go along. How much of our economy ultimately will be transferred to the private sector? I don't think anybody knows."

But one thing seems clear: Unless the transition proves unexpectedly smooth, the new government has only a year or two to demonstrate that the new system will produce some improvement--or risk being ousted itself.

"This government has a limited life," says Eugenio Lari, the World Bank's top Poland expert. "They must provide positive results, or they will be pushed out."

For now, Poles seem willing to give Solidarity a chance.

"I trust this government," Krakow's Potocki insists, "and I am not worried about the future. By my thinking, changing to free-market rules will bankrupt the state-run enterprises and there will be more room for the rest of us to succeed."

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