Corruption Replaces Socialism as Roadblock to Business in Poland

When the Communists were routed peacefully from power in Poland, Stanislaw Grabowski had just graduated from doing business from his suitcase and a corner of his garage. In some ways, those days seem ages ago, for his fortunes have risen remarkably in the threeyears since. He now is building two houses, and says, “If I wanted to, I could buy myself six fancy German cars.”

He doesn’t want to. He wants to keep his head down, for, as he and scores of other successful people know, a strange mood prevails in the business world in Poland.

To begin with, Grabowski and others have learned that to be identified as successful or rich is to make oneself a target--of thieves, burglars or various official and semiofficial predators. The affluent also endure the opprobrium of a society that, after four decades of socialist “egalitarian” ideals, regards financial success with suspicion or outright malice.

For these and other reasons, Stanislaw Grabowski is a pseudonym. Like many others, he is reluctant to go on the record. But his story tells much about what it takes to succeed in the parts of Eastern Europe undergoing economic reform and how business really gets done these days in Poland.

Grabowski is in the computer business. He hit on the idea a year or so before the 1989 revolution and began with $5,000 of borrowed capital. He went to Singapore, bought cut-rate computer components and flew them home to Warsaw. With the aid of two young computer whizzes, he put the machines together, sold them, headed off again with more money and brought back more computer parts.

By mid-1989, when the trade union Solidarity had clobbered the Communists at the polls and the anti-Communist revolution was accelerating across Eastern European, Grabowski was traveling regularly to Taiwan and Singapore with as much as $300,000 in cash stuffed in a suitcase. Shipments of goods were now coming by sea as well as air freight.

He had moved from his garage to a warren of tiny rooms in the basement of a run-down apartment in Warsaw’s northern suburbs. He had a dozen employees bolting together the computer parts. His basic business idea--re-exporting second-generation IBM-XT-type clones to the Soviet Union--was paying off handsomely.

The halls and rooms of his makeshift quarters were stacked to the ceilings with boxed computers, incoming and outgoing. His staff set up an assembly line, adding disk drives and power units to the motherboards that arrived by the vanload from the port in Gdansk, his men working routinely until midnight to keep up with the load.

Last year, he moved into newer, larger quarters nearer the city’s center, and business to the former Soviet Union--to Russia, in particular--took off. The collapse of the market for industrial goods from Poland to the former Soviet Union had not affected Grabowski’s business. Indeed, the demand has continued to grow.

By 1991, the operation he had started with $5,000 in borrowed cash had sales exceeding $10 million. In just the first quarter of 1992, that figure was $10 million and he is hoping for gross sales of $30 million for the year.

Grabowski, 34, is a confident businessman, and, according to those who work for him and have dealt with him, an honest one. But, like many successful business people in Poland, he sees the current situation as fraught with uncertainty and riddled with corruption.

“Things are moving too slowly,” he said recently. “Everything is jammed up. They (the government) have to privatize everything. It doesn’t matter how they do it, but they have to do it quickly. The corruption we are all having to deal with is staggering.”

Grabowski illustrated the problem from a recent experience. Having outgrown his new quarters, he was searching for a bigger location. “The two biggest hurdles for businessmen in Poland now are obtaining working capital--loans--and finding space to work--property, real estate,” he said.

He located a suitable building on the city’s edge: 10,000 square feet, surrounded by several acres and unused for years. It was public property, a former state enterprise long gone bust. It was controlled by a local official.

Grabowski pulled the deed and bill of sale for the property from a folder in his desk. “After long negotiations,” he said, a sale price of $400,000 was reached. “But,” he added, “that was only half of what it cost.” An equal amount had to be paid to local officials--in the form of bribes.

“Of course I didn’t want to pay it!” Grabowski said. “Are you kidding? But I need the space. I have to have it if my business is going to grow. We are bursting the walls out here. The whole thing stinks. But what am I going to do? In the long run, it will pay back. But it’s totally corrupt!

“I would have paid $800,000 for the building. That’s what I did pay, after all. But I would have paid it officially, and the money would have gone where it was supposed to go: to the public treasury.”

Could he have blown the whistle on the corrupt officials? “Yes,” he replied, “but what would it have gained me?” The officials would have denied it (such transactions, after all, are carried out with precautions); there would be nothing on paper to back up his claim; and the building would have been tied up in litigation for years.

Private enterprise has exploded in Poland since 1989, jumping from 28% of the gross domestic product to 40% in 1991. Private enterprises account for more than 42% of imports. About 100,000 small- and medium-sized retail and wholesale stores, once owned by local authorities, have been sold to private business people or companies. And 80% of the nation’s small shops have been privatized.

Few of the new owners have been as successful as Grabowski, although he has plenty of company in the growing ranks of discreet Polish millionaires. But virtually all have similar accounts of corruption, if on a smaller scale.

In a move that certainly is not unique to Poland, some business people talk of “buying” politicians and local officials to look after their interests. A young restaurateur recently introduced a visitor to a suburban Warsaw official--young, plump, his casual attire accented by his designer sunglasses. He sipped coffee while the restaurateur complained about the payoffs necessary to get a business started. The mayor, taking his leave, shook hands all around.

“Is he on the payroll too?” the restaurateur was asked, jokingly.

“Of course,” he replied. “But at least you can count on his word. He’s a good man. Progressive.”

Government officials who have cut themselves in on scams--such as the head of the national bank and several of his deputies, who were fired in one last year--might be considered the post-communism version of the nomenklatura, the powerful Communist figures who once ran government and industry. The definition of the term nomenklatura expanded through the years beyond the most powerful (national and regional party officials and large-factory managers) down to the village level. It now stands for a network of connections.

Zbigniew Kusnierek, 35, who retired as an army colonel last year, represents nomenklatura business acumen in the “new” Poland.

An expert on finance, he worked for years as the army’s representative in the Ministry of Finance. Among his achievements was setting up a complicated foundation to help fund the army soccer team. Privately held companies could join the foundation as partners, as 20 did, enjoying tax advantages, promotional opportunities and use of certain facilities; the arrangement helped turn a profit for the money-losing team.

While still a colonel, Kusnierek, along with his wife, set up a number of consulting and accounting companies. And he used his knowledge of tax law to help start new businesses--even some modest joint-venture operations.

Then he hit on the idea of Art-Woj, a foundation to help the army put some of its vast holdings to profitable use. The foundation--again with private partners--would employ up to 25% of its profits for “cultural” and “entertainment” opportunities for Polish soldiers.

“If you ever saw the inside of a Polish army barracks, you would understand why this is needed,” Kusnierek said. “I’m talking about things like television sets, books, libraries, video games. Soldiers have a pretty bleak life. And the Ministry of Defense, like every other part of the government, is broke . . . .

“At the same time,” he went on, “it has enormous assets that are unused. In fact, they are not only unused, but they cost money to maintain, just to stand guard over. If these facilities could be turned over to some useful purpose, well, then a lot of people could benefit.”

Kusnierek does not exaggerate the size of the military holdings, extensive reserves that the Soviets insisted that Poland maintain during the long Cold War years. Now, they seem a wasteful anachronism. In fact, the property represents enormous profit opportunity for those invited to join the foundation.

Among the property to be turned over to Art-Woj are warehouses and unused military posts, including air fields, the most important of which is at Modlin, north of Warsaw. Kusnierek’s vision of Modlin is of an enormous cargo hub, an exchange point for goods moving from the West to the enormous and rapidly opening market in the former Soviet Union.

“I see it as a free trade zone,” Kusnierek said. “It would be a place where buyers and sellers can get together, where companies can set up shop to display their products, where goods can be bought and sold and shipped from one location, perfectly, strategically located.”

It would be, in Kusnierek’s vision, a shopping mall for international traders, with huge transport planes coming in and out and computerized cash registers beeping merrily while toting up the landing and warehouse fees.

There are hurdles, of course, but the Ministry of Defense seems to favor the idea, the potential for which is so high that there are already political fights going on among potential partners. Kusnierek, who has been Art-Woj’s treasurer, might even be forced to bow out. This, he notes, is a very tough ball game.

Is this Polish business, nomenklatura -style? Maybe, but Kusnierek sees a good side in it. Shouldn’t there be a way to help create a stable middle class in Poland? he asks. “You use your knowledge,” he says, “and it helps to create stability. You cannot have a stable country, a stable economy, without a middle class.”

Ireneusz Sekula, a member of Parliament--his party is the reformed, renamed Communist Party: the Democratic Left--is the figure in Poland most often cited as a former Communist official profiting from his old connections. He denies it.

“This mentality,” he says, “is based on the premise of connections with the government. Well, we’ve had three governments already (since the Communists fell) and are about to have a fourth. And, if you check throughout the system, with the district political leaders, the bank managers, the officials, not a single person is left who is connected with the old regime. These connections are absolutely extinct by now.”

Sekula was a ranking economic official in the last Communist government of Poland, and, shortly after the changes, he set up a consulting company, Pol-Nippon. He acted as the agent to establish a natural gas importing depot in an unused area near the port of Gdansk. Protests from the Solidarity-led faction of Parliament scotched the deal, the main argument being that a former official of the Communist regime would benefit hugely from the arrangement.

Sekula says the deals--which he maintains would have given the city of Gdansk a 20% share in the profits and revenue from the lease of the property and taxes--was “torpedoed by the new nomenklatura . They didn’t want other cows grazing on this grass.”

Nomenklatura may have connotations associated with communism, he notes. But he points out that “when the President of the United States is changed, he brings in 2,000 new officials with him. It’s the same thing . . . .

“In Poland now,” Sekula goes on, “we are in a gray era. The economic pathology is always worse in these periods.”

It may take years, experts say, to sort it all out.

But for the short term, at least, in the absence of effective regulations--and regulatory agencies--many believe that business success will depend not only on ideas and hard work, but on greasing palms, on connection, on political muscle, the Western business principle of leverage.

“Maybe,” Grabowski said, “we are just learning how the world works.”