TIME: Almanac 1990/1990 Time Magazine Compact Almanac, The (1991)(Time).iso/time/121889/12188900.027

Text File | 1990-09-19 | 6KB | 98 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.