World War II, Poland’s economy depended largely on agriculture. However, the Communists, who had achieved a monopoly on power by 1947, adopted a Soviet-style planned economy in which heavy industry and engineering were emphasized. Nearly all branches of large industry, trade, transportation, and finance came under the control of the Communist government. Private ownership was limited to agriculture, handicrafts, and certain services. During the first several decades of the Communist period, Poland’s economy grew. However, in the late 1970s the country began to experience severe economic difficulties, caused by a series of poor harvests, unrest among industrial workers, shortages of consumer goods, lagging technology, rising inflation, and a massive foreign debt. These economic problems, which worsened during the 1980s, were responsible in large part for the collapse of the Communist regime and its replacement by a non-Communist coalition in 1989.
From the mid-1970s the Polish economy experienced limited growth, largely as a result of an antiquated industrial infrastructure, government subsidies that masked inefficient production, and wages that were artificially high relative to the standard of living. In the late 1980s a swelling government deficit and hyperinflation brought about economic crisis. With the fall of communism and the demise of Comecon, the Polish economy became increasingly involved with the market-oriented global economy, for which it was ill-suited. To try to achieve economic stability, the postcommunist government introduced an approach known as “shock therapy,” which sought both to control inflation and to expedite Poland's transition to a market economy. As part of that plan, wages were frozen, price controls were removed, subsidies to state-owned enterprises were phased out, and large-scale private enterprise was again permitted. As a result, in the early 1990s, industrial output and gross domestic product (GDP) dropped significantly.
Poland has steadfastly pursued a policy of liberalizing the economy and today stands out as one of the most successful and open transition economies. GDP growth has been strong and steady since 1992 - the best performance in the region. The privatization of small and medium state-owned companies and a liberal law on establishing new firms has allowed for the rapid development of a vibrant private sector. In contrast, Poland's large agricultural sector remains handicapped by structural problems, surplus labor, inefficient small farms, and lack of investment. Restructuring and privatization of "sensitive sectors" (e.g., coal, steel, railroads, and energy) has begun. Structural reforms in health care, education, the pension system, and state administration have resulted in larger than expected fiscal pressures. Further progress in public finance depends mainly on privatization of Poland's remaining state sector. The government's determination to enter the EU as soon as possible affects most aspects of its economic policies. Improving Poland's outsized current account deficit and reining in inflation are priorities. Warsaw leads the region in foreign investment and needs a continued large inflow.
