Reply to David Schanoes on Gierek's Poland

Jurriaan Bendien bendien at
Tue Sep 30 04:51:32 MDT 2003

David Schanoes wrote:

When the Gierek regime first assumed power, Poland's hard currency debt was
less than 1 billion dollars.  In order to develop the economy, an economy
circumscribed by small scale agriculture, Gierek proposed financing the
expansion of Poland's steel, copper, electronics, and shipbuilding
industries through the good offices of the Western European and US banks.

Yes, this is true, and in fact in his book "La Crise", Ernest Mandel
describes the process of the Polish economic crisis in a chapter. Gierek's
strategy was actually in some ways similar to Prime Minister Rob Muldoon in
New Zealand in the early 1980s, who, faced with recession at that time,
invented an interventionist state economic strategy called "Think Big" to
develop New Zealand primary resources to provide employment for workers and
guaranteed minimum prices to farmers (hydroelectricity - e.g. the Clyde dam,
methanol/ethanol production - e.g. the Synfuel plant, steel production,
ports, woodmilling etc.). "Think Big" was also based on borrowing foreign
money, and developing primary resources on the basis of joint ventures (the
capital outlays were huge). Many "Think Big" projects were eventually
successful, but many were bought out by foreign investors after a while.

The problem with Gierek's scheme in Poland, just as with Muldoon's scheme in
New Zealand, was that the world economy was already stagflating, which in
reality meant escalating project costs and diminishing returns, and the
employment effects of the schemes just weren't that great, at least not as
great as promised. Muldoon actually did better than Gierek, in the sense
that Gierek could not even sell coal, steel and ships overseas, because
there was no market for them, and in the sense that Muldoon had a better
appreciation of market economics than Gierek had (Gierek wanted to develop
industries without a clear picture of real demand for the output of those
industries, which was totally irresponsible). Muldoon's favourite economist
was J.B. Condliffe.

When I say that "people do not believe American theories anymore, these just
create poverty and exploitation for the many and wealth for the few", I am
of course referring to ordinary working folks outside of the USA. When
American interests take over your economy, they enrich themselves and they
enrich the local elites and some of the middle classes, but for the rest of
the people, it's just more hard slog, exploitation and poverty. They justify
that by saying, "well didn't we develop this company or that resource, and
shouldn't we be rewarded for that" but if you look closely at the larger
transactions, it is clear that the whole purpose of the activity was to
extract a flow of income in the first place.

That is not to say that Americans don't have great technical expertise and
managerial capability, because they do. They just don't understand that
there is a big difference between "aggregate economic growth" and "private
capital accumulation", and that aggregate economic growth can stagnate,
while private capital accumulation increases, for those who command large
amounts of capital. I have tried to explain in previous posts why that is
the case.

The effect of American IMF-type economic restructuring in New Zealand means
basically that every year, around $NZ 10 billion of net profit income leaves
the country (roughly $3000 for every man, woman and child in New Zealand)
while the foreign debt increases, real economic growth is low, the "growth
area" is real estate, and that the rich-poor gap has increased enormously.
But the point is, the same thing is happening in the USA itself ! People
still think now, that this can continue long term, but they are living in a
cloud-cuckoo land if they believe that. It's just a matter of time before
escalating debts, falling investment of a type creating significant
additional employment, and falling currency values create an explosive
social situation. The basic "social alternative" that the intelligent
gamblers have, is to position themselves in such a way, that it will not
hurt them too much, when the slump eventuates. "Live now, pay later - but if
you can, let somebody else pay the costs".


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