Economic Theory

Book review: “The road to socialism and back. An economic history of Poland, 1939-2019” by Peter J. Boettke, Konstantin Zhukov and Matthew Mitchel (Part 2)

…continued from Part 1


Economic stability

Marxists have always seen boom-and-bust cycles as evidence of the fundamental irrationality of capitalism (or “anarchy of production”, as they call it). However, as the authors show, socialist Poland had more extreme economic swings than Western economies. This is not a coincidence. Since, in a planned economy, there is no separation of politics and economics, a change in the leadership of the party can mean a completely different set of economic priorities.

Treatment of minorities

In the 1960s, Poland expelled a large proportion of its remaining Jewish population. This was a response to the Arab-Israeli war, but the authors argue that it also had an economic component. The Polish economy was doing badly, and the government needed to blame the shortages and disfunctions on someone.

The hunt for imaginary saboteurs is a constant in socialist economies, which can be traced back to the very early days of Soviet Russia after the October Revolution. The Polish People’s Republic even had a “Special Commission for the Fight against Economic Abuses and Sabotage”. When faced with a potato shortage, the East German government came up with a bizarre theory about how American airplanes were deliberately dropping potato beetles over GDR territory, in order to decimate the harvest and make socialism look bad. Today, the Maduro regime in Venezuela (and its remaining Western apologists) blames every shortage on imaginary “hoarders”, “wreckers”, “saboteurs” and “speculators”.

The socialist tendency to look for scapegoats does not need to have an antisemitic, or indeed any ethnic dimension. But it is, at the very least, easily compatible with antisemitism or other forms of racist prejudice.

The post-socialist transition and Poland today

While the authors see post-1990 Poland as something of a success story, their argument is not that Poland’s current economic model is an especially good one that others should aspire to emulate. Even today, more than three decades after the transition began, Poland still remains quite far away from a free-market economy.

Poland is a fairly bureaucratic economy. It takes longer, and costs more, to set up a business in Poland than in most other OECD economies. Poland is not especially welcoming to Foreign Direct Investment either, and they still have over 100 state-owned enterprises left. Public spending is consistently above the OECD average, with high payroll taxes discouraging work. While its southern neighbours introduced more market-based healthcare systems in the 1990s, Poland’s healthcare system remains largely state-controlled. Most worryingly, they score quite poorly on the protection of property rights and the soundness of the legal system, an index which is extremely closely correlated with prosperity.

Poland is not even an especially good example of a post-socialist transition: some reformers went further and/or reformed faster. However, Poland started its transformation process earlier than others, and its reform-process was more broad-based. Some Eastern European economies only reformed some aspects of their economy, but neglected others. Poland did a bit of everything: privatisation, deregulation, trade liberalisation, tightening the money supply, and reforming the legal system.

The results? Poland is now three times richer than they were in 1989. Life expectancy has increased by about seven years. Not everyone has benefitted equally, but absolute poverty remains low, and unemployment, which used to be a big problem during the transition years, has fallen to below the OECD average. Poland could do a lot better still, but the way the country has turned itself around is still impressive.

Why now?

About half of this book is about an economy which no longer exists (namely the planned economy of the Polish People’s Republic), and about the transition process away from that economy. Why does this matter now? Why should you, the reader, care about this?

The book is not a standalone publication. It is part of a series inspired by the return of socialism as a mainstream ideology, under the guise of “Millennial Socialism” and its younger sibling “Gen-Z Socialism”.

Millennial and Zoomer socialists have convinced themselves that what happened in the former Eastern Bloc economies was somehow not “real” socialism, and that “their” version would somehow be completely different.

The problem with this argument is that it is only ever made at a very general level. Millennial/Zoomer socialists never spell out what exactly they mean by that. What exactly would they do differently?

This book shows that Poland’s version of socialism did not just fail. It failed in very systematic ways – ways that had been accurately predicted by liberal critics of socialism even before socialism was tried in practice. The authors open with a theoretical discussion of the economics of socialism, going back to the Austrian School of Economics, and the Socialist Calculation Debate that started in the 1920s. Having prepared the ground in this way, they then go on to show that the Polish economy, like other Eastern Bloc economies, really did exhibit the problems that Austrian School economists expected a socialist economy would have.

This is not polemical “commie-bashing”. (Not that there’s anything wrong with that.) It is a good-faith critique, which combines economic theory with economic history. The original Socialist Calculation Debate really was that: a debate. Old-school socialists used to engage with their Austrian School critics, and tried to prove them wrong. Modern-day Millennial and Zoomer socialists don’t really do that anymore: they usually just dismiss non-socialist arguments as “cringe”.

Which is a shame. While the authors of this book ultimately reject socialism, this does not stop from from engaging seriously with socialist economic thinking. Modern-day socialists should try to return that favour. They might learn something in the process.



Recommendations for further reading/watching/listening:


Head of Political Economy

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

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