As a new decade dawned in 1990, it was time for Poland to confront the reality of the failed communist experiment. Marxist economic planning was out; neoliberal free markets were in. No more price controls and no more propping up failing state corporations. Standing in the way of this transition was a formidable wall of structural problems: closed trade networks, fixed exchange rates, a non-convertible currency, and a massive mountain of foreign debt accumulated over two decades of state mismanagement (Sachs, 2006). By 1989, the new leaders of Poland realized that they needed to bring in outside technical expertise to assist in reviving the ailing Polish economy. Notable figures, such as American economist Jeffrey Sachs, were brought in to consult on plans to lead Poland into this new era. Poland was in for a steep learning curve, guided by a new man with a plan: Leszek Balcerowicz.
Leszek Balcerowicz was a researcher and professor at the Central School of Planning and Statistics (Szkoła Główna Planowania i Statystyki – SGPiS) when he was selected to become the new finance minister. The new prime minister, Tadeusz Mazowiecki, had convinced Balcerowicz to take the post of finance minister to help the new Solidarity-led government reform the economy (PBS, 2000). As Jeffrey Sachs recalls in The End of Poverty, Balcerowicz stated in one of the initial meetings: “We’re going to do this, and we’re going to do this dramatically fast” (Sachs, 2006, p. 121). On January 1, 1990, the bandage was ripped off the Polish economy. This was the equivalent of telling someone that this medicine was necessary to save a patient’s life but it would taste horrible for several years. “Shock Therapy” was born.
Balcerowicz’s “Shock Therapy” was anchored directly in neoliberal market theory. The privatization of inefficient state companies, economic deregulation, and tax reform are key principles of neoliberal economic policy—and they were the main agenda items of the Balcerowicz Plan. The end goal of this plan was to stabilize Poland’s economy to create the conditions that would facilitate a market economy (Christianto, 2018). The actual plan itself called for six critical points to reform Poland’s economy quickly, each reflecting neoliberal values:
1. Price Liberalization (Abolishing Price Controls)
- The state ended central price-fixing on over 90% of consumer goods and industrial materials, allowing market forces of supply and demand to dictate prices immediately (Garland, 2015).
- This was necessary to remove the shortages and force businesses to operate more efficiently and innovate (Garland, 2015)
2. Hyperinflation Control
- To halt hyperinflation, the central bank restricted the money supply and raised interest rates above inflation. Balcerowicz introduced a tax (the popiwek) on state enterprises that raised employee wages beyond official inflation-linked limits, preventing a runaway wage-price spiral (Garland, 2015).
- Hyperinflation in late 1989 was caused by unloading the Polish zloty via the legalized black market, a wage-indexing mechanism put in by the outgoing government that inflated real state wages, and drastic food subsidy cuts that together ignited a wage-price spiral (Garland, 2015).
3. Balance the Budget – Fiscal Responsibility
- Interest rates need to fall, no more excessive foreign borrowing, and there needs to be a fiscal responsibility to citizens such as social safety nets (Sachs, 2006)
4. Currency Stability & Convertibility
- A balanced budget would help with the stabilization of the Polish Currency (PLN, the złoty), the currency needed to be convertible
5. Foreign Trade Liberalization
- State monopolies on import/export trade were abolished. All enterprises and businesses in Poland have the right to engage in foreign trade, not just those with government approval (Garland, 2015). This also served to eliminate state monopolies and oligopolies as all companies are exposed to foreign competition.
6. Privatization
- The private sector needs to be developed and must be treated as part of the solution rather than the problem (Taylor, 2020). The lack of consumer goods is solved by providing more consumer goods, not limiting who can produce and import them. This is classic neoliberal supply and demand and deregulation theory.
The fall of communism in East and Central Europe ushered in a new era of neoliberal hegemony and this rapid privatization was just the start (Ther, 2025). The Balcerowicz plan and the speed with which it was executed allowed for entrepreneurship to develop rapidly and without arbitrary restrictions in Poland. The plan’s stabilization and liberalization measures created favourable conditions for private businesses (Johnson & Loveman, 1995). Prior to the advent of Shock Therapy in 1990, it was difficult, if not impossible to be an entrepreneur in Poland. Finding start-up capital, real estate to operate out of, and supplies was challenging at the best of times (Johnson & Loveman, 1995). After the new plan was launched, supplies became freely available at prices that were not controlled by the state and imports were permitted, allowing for private businesses to grow (Johnson & Loveman, 1995). By 2022, 11.8 million people worked in the private sector in Poland (Statista, 2024). Clearly, this is a vast difference from 1990 when the private sector was just getting started.
The application of neoliberal values and theory transformed the economies of the former communist states. Instead of the state arbitrarily setting prices and quotas, factors of production are paid according to their market value (Palley, 2005). Prices could then adjust for demand and businesses may produce according to that demand (Palley, 2005). The market in Poland had been so manipulated by the government in the past that prices literally had to hit hyperinflation levels in order to eventually stabilize. Communism created economies of shortage and goods that were of poor quality because there was no competition or profit incentives (Johnson & Loveman, 1995). In the past, the state-run businesses just did not care enough because they would get paid no matter what happened. A free market economy will eventually increase the GDP of its participants (Christianto, 2018). After the Balcerowicz Plan was launched, Poland took decades to reap the rewards. Critics of this plan thought a slower transition would have been best. In the long run that would have meant a slower transition for Poland to its current economic state as a successful market economy.
The fact that Poland had an “executive team with a real executive leader” to execute the Shock Therapy plan was one of the reasons it was successful and it able to be executed so quickly (Sachs, 2006, p. 121). Decisions were not left in the hands of the government to stall in bureaucratic gridlock or endless debate. Starting in the late 20th century, the rapid expansion of globalization was driven by neoliberalism (Ther, 2025). The fall of communism was treated as a great victory for capitalism and open markets, with the Berlin Wall falling as the final physical symbol of communism’s demise in East and Central Europe (Ther, 2025). The dissolution of the Soviet Union and Poland’s eventual ascent into the EU and NATO were the last cords that were cut to ensure Poland carved its own path in the years ahead. No industry would be left undisturbed in Poland’s restructuring and in further essays on this blog, we will examine the healthcare industry, which deeply contrasts with our healthcare in Canada.
References:
Balcerowicz, L. (2000). Commanding heights: Interview with Leszek Balcerowicz [Interview]. PBS. https://www.pbs.org/wgbh/commandingheights/shared/minitext/int_leszekbalcerowicz.html
Christianto, H. (2018, August 10). Neoliberalism: Past, present… future? Canadian International Council. https://thecic.org/neoliberalism-past-present-future/
Garland, E. (2015). Reflections on the Balcerowicz plan. Nauki Ekonomiczne, 21, 227–244.
Johnson, S., & Loveman, G. W. (1995, March 1). Starting over: Poland after communism. Harvard Business Review. https://hbr.org/1995/03/starting-over-poland-after-communism
Palley, T. (2005). From Keynesianism to neoliberalism: Shifting paradigms in economics. Economía UNAM, 2(4), 13–32.
Sachs, J. D. (2006). The end of poverty: Economic possibilities for our time. Penguin Books.
Statista. (2024, May 15). Employment in Poland. https://www.statista.com/topics/9022/employment-in-poland/
Taylor, P. S. (2020, March 27). Want more affordable housing in Canada? Build more houses. C2C Journal. https://c2cjournal.ca/2020/03/want-more-affordable-housing-in-canada-build-more-houses/
Ther, P. (2025). From the Washington Consensus to the Warsaw Consensus: “Shock therapies” as a neoliberal success story. European Review of History, 32(4/5), 463–485. https://doi.org/10.1080/13507486.2025.2521268
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