I’ve written before about former Polish deputy prime minister and finance minister Leszek Balcerowicz, who was honored last night with the Cato Institute’s biennial Milton Friedman Prize. Cato Institute’s Michael Tanner explains Balcerowicz’s “shock therapy” for Poland. After the fall of communism the country had a choice to make, rapidly transform into a capitalist society and join in the success of Western Europe, or take a snail’s pace approach the likes of which has left Ukraine facing the problems it faces today. Congratulations to former Deputy Prime Minister Balcerowicz. Read more about the Milton Friedman Prize winner here:
When Balcerowicz became deputy prime minister and minister of finance in 1989, Poland’s economy, like those of most Eastern European countries, was a basket case. The country’s debt exceeded two-thirds of its GDP. Inflation ran as high as 250 percent per year. Both national income and productivity were declining, while basic consumer goods were often in short supply.
Balcerowicz rejected Keynesianism, choosing instead policies dubbed by both supporters and opponents as “shock therapy.” Prices were deregulated, and Balcerowicz balanced the budget by slashing government spending. State-owned enterprises (SOEs) were sold off: Almost 1,900 were directly privatized in the first half of the decade, and many more were liquidated or had to declare bankruptcy because they were inefficient and unable to compete in a market economy. The sales and closings removed these distortions from the economy.
Balcerowicz vigorously pursued a free-trade agenda, cutting tariffs and other import barriers. He was an early advocate of social-security privatization and helped set the stage for the introduction of privately invested personal accounts as part of Poland’s national pension system.