TIME: Almanac 1993/TIME Almanac 1993.iso/time/121889/12188900.027

Text File | 1992-09-23 | 5.6 KB | 110 lines

                                                                                NATION, Page 39

Making Deals in Poland


It's a worthy idea, but Americans find little to build on

By Gisela Bolte


    Mike Harper trudged through the dirty snow in downtown
Warsaw searching for a fur hat to protect him against the icy
wind. But among the meager selections in half a dozen stores,
he could not find one hat that fitted. Harper, who runs a large
food company in Omaha, refused to give up. He decided to offer
one hatmaker the equivalent of an extra $10 in zlotys to whip
something up by next morning. The man showed little enthusiasm,
however, his sullen face reflecting the effects of 45 years of
Communist rule. Harper left the store doubting that he would get
his hat.

    Those doubts were mirrored by the other members of a
high-level U.S. mission that was searching for ways to assist
Poland in building a free-market economy. Arriving in Warsaw two
weeks ago, the delegation of Bush Administration officials,
business executives, labor leaders and academics fanned out on
scouting trips, touring farms, factories, coal mines and
training centers and surveying the Polish telephone system.

    Their findings were hardly encouraging. The Ursus tractor
plant outside Warsaw, which once supplied farm equipment for the
entire East bloc, was operating at only a fraction of its
capacity. At the OMIG electronics factory, the building was
crumbling and the technology 25 years old. "The Poles are doing
very well with the tools they have," said Robert Galvin,
chairman of Motorola. "But to be competitive they need entirely
new operations."

    Still, the Americans were impressed with the candor of
Polish leaders and their determination to pursue tough reform
measures. Polish Deputy Prime Minister Leszek Balcerowicz was
especially forthright in outlining an ambitious program to sell
off state-owned enterprises, balance the budget, break the back
of hyperinflation and move toward currency convertibility. Said
Agriculture Secretary Clayton Yeutter, who led the mission: "We
listened, and all we had to do was say `Amen.'"

    But the suddenness of Poland's great leap may create new
problems, even as it seeks to solve old ones. The country lacks
economic institutions that took centuries to develop in the
West: it has no stock exchange, no commercial banks, little
experience in the rough-and-tumble of a free market. Barry
Sullivan, chairman of the First National Bank of Chicago,
wondered whether the Poles' eagerness will prove to have been
"monumental courage or sheer folly." While none of the Americans
doubted the commitment to reform at the top of the Polish
government, some questioned how it would be received once
subsidies are ended and prices begin fluctuating. "It will
depend on the political prowess and strength of the government,"
said Yeutter. "There will inevitably be some slippage."

    Labor Secretary Elizabeth Dole and her Polish counterpart,
Jacek Kuron, signed a memorandum of understanding on U.S.
technical help for setting up an unemployment-insurance system
to soften the blows of economic reform. "Where they ask us for
assistance, we'll give it to them," said Dole, who will dispatch
a team of unemployment-insurance specialists to Warsaw in early
January. They are likely to be busy. Economic conditions in
Poland are grim, with inflation running at more than 50% a
month. With the value of the zloty plunging, farmers and store
managers are holding back merchandise, thereby contributing to
shortages. As many as 600,000 workers may be unemployed next
year when obsolete and inefficient plants are downsized or
closed. At the same time, real income is expected to plummet as
the government cuts subsidies while trying to hold down wages.
The U.S. delegation heard a lot of concern from Polish officials
that the effects of economic reform might provoke social
protest.

    The Poles are desperate for U.S. investment, but the
visiting Americans came away skeptical. "Now is not the time,"
said Harper. The banking system is all but inoperative, business
laws and accounting standards are inadequate, and the phone
system works poorly when it works at all. "Once they get those
things done, the appetite for investment will increase," Harper
said. Yet the appetite is there. Last week Chase Enterprises of
Hartford agreed to a 70%-30% partnership with a Polish
consortium to build a $900 million cable television network in
the country.

    Other U.S. firms are settling for smaller opportunities. An
Indianapolis firm, SerVaas Inc., hopes to interest Poles who
hold dollars in its line of three $32,000-to-$36,000 model
homes. A major selling point: the houses can be ready for
occupancy in 60 days, as opposed to the average 26 years that
most Poles must now wait for a new house.

    Despite their doubts, the members of the American
delegation, whose visit ended even as Presidents Bush and
Gorbachev were meeting in Malta, returned home convinced that
Poland -- larger than Hungary, more eager for economic change
than the Soviet Union, more depressed than East Germany -- is
a critical test case for reform. If a modern, free-market
economy can be created there, the visitors believe, prospects
will improve throughout the East bloc. Certainly Mike Harper
found reason for hope. The sullen hatmaker whom he offered a $10
bonus turned out to be a budding entrepreneur in disguise.
Encouraged by the prospect of profit, he scoured Warsaw for a
suitable pelt and next morning presented Harper with a handsome,
custom-made hat of red fox fur.