Stan wojenny: My memories of the (post) Martial Law

When several days ago I ran into a Polish bar tender(ness) in a restaurant in New York and she told me she was born in 1981, I, wanting to impress her, pronounced these two Polish words “stan wojenny” (the state of war). They brought in a veritable surge of memories.

My interest for Poland began with the Solidarity movement in 1980. The movement was extremely important. It was a movement for the true independence of Poland, and it was supposed to have never happened in a socialist country: workers standing up, in millions, against a workers’ state! The evolution of Solidarity from its legalization, the many conflicts with the authorities, and the eventual ban as well as the turmoil within the Polish United Workers’ Party (Gierek, Kania, Jaruzelski) was covered very well in the Yugoslav press. Perhaps it was one of the best and most detailed coverages of any foreign event. It was discussed better than in the mainstream US magazines like Time and Newsweek.  At that time, I read a lot about Poland, attended discussion seminars, started to study the language, and was helped  by a close friend who had personal ties to Poland.  

Fast forward to 1987 when I began to work as a country economist for Poland in the World Bank.

For the background, it is important to know that Poland became World Bank/IMF member in 1980 and then in 1981, after the Martial Law was declared, it defaulted to the Western club of public creditors. The country’s GDP dropped precipitously in both 1980 and 1981, the West imposed economic sanctions, the country did not export much to gain foreign currency anyway, and the default ensued.

The World Bank could not technically lend to Poland under such conditions even if the real reason was political. Poland was probably, within the World Bank, the most closely "monitored" (controlled) country by the US Treasury. The World Bank could do only economic work but no lending. The Polish government, being keen on having relations with the IMF and the World Bank, and hoping that they might ultimately lead to the softening of Western sanctions and rescheduling of the debt, was most forthcoming. Unlike many governments that would drag their feet, here was a government happy to talk to you.

But it was also a government that could do almost nothing. It was hemmed in internally by being in conflict with its “society”. It was unable to introduce a stabilization program that would lead to a severe decline in real wages. Externally, it could not renegotiate the debt. Finally, it could not move on some issues like privatization because this was ideologically unacceptable and it was not clear how the Soviets would look at it. The government nevertheless launched a stabilization program, named after a technocratic deputy Vice Premier, Professor Sadowski. It was a program of which the later famous Balcerowicz plan was a carbon-copy. But the Sadowski program failed because it could not politically push real wages down; it lacked political legitimacy and could not overcome the external constraint.

The Polish government and its agencies were totally technocratic. This was very different from Yugoslavia where its home-grown system of “socialist workers'  management”, complete with complicated ideological “baggage”, made the government thoroughly ideological. In Poland, the communist ideology was dead--since 1968. Only the language of technocracy existed.

Poland was much freer in the post-Martial Law than the Soviet Union without it. Political discussions in Poland were remarkably open. There were good books and good newspapers. I was able to read tolerably well Polish at the time and I recall how impatiently I would wait for the weekly publication of Polityka which always carried good sociological and political articles. These were much more interesting discussions—to my mind—than those in Yugoslavia at the same time. Yugoslavia was entirely “nationalized”: every issue was considered through the prism of nationalism: is it good for the Serbs, Croats etc. In Poland, which due to the Holocaust and ethnic cleansing of the Second World War, was 99% ethnically and religiously homogeneous, the issues were political not ethnic.

It was also a very “civilized” country. One small event stands out in my memory. On a Saturday night, there was a rowdy crowd of young people drinking in the main square in Warsaw. Two policemen approached the drinking crowd. Before policemen asked them for IDs, they politely lifted their hands to their hats and saluted. I thought: “Incredible. Where else would you see policemen saluting an angry drunk crowd of young men”.

Prices were totally out of whack. Just before taking a train to go to Krakow I bought a couple of bananas. The two bananas cost as much as my 300 kilometers’ journey. In a market economy, you would have to pay about 200 bananas for the trip. So relative prices (in this case) were off by a factor of a hundred. Subsidization, which in those days amounted to about 15% of GDP, meant that exports had to be protected: every foreign sale of subsidized goods was a domestic loss. It was a topsy-turvy economy. The newspapers spoke of East Germans who would travel to Poland to buy subsidized food. Custom officials were directed to search cars and stop the outflow of goods.

At times comical scenes ensued. Western goods (rare as they were) were purchased by state import companies using the foreign exchange obtained at the official rate: say, 1 zloty for 1 dollar. They would then sell the goods (e.g., Italian shoes) at that price plus 20% mark-up. They would buy Italian shoes for $100 dollars (100 zloty), add 20 zloty mark-up and sell them for 120 zloty. But 120 zloty at the officially tolerated black market rate was only $30! So people, including foreigners, and my World Bank co-workers,  would—whenever the rumors spread that Western goods had arrived—run into these stores and buy Italian shoes at ridiculously low prices.

A system like this could not function much further: wrong prices led to individually rational, but socially dysfunctional, decisions; subsidies could not be financed any more, and the system had to be autarkic in order to protect itself.

On December 13, 1987, exactly six years since the morning when my mother woke me up, all panicky, to tell me that Jaruzelski had proclaimed the state of war in Poland, I walked on a snowy evening around the downtown Warsaw. Everything was quiet and the only thing I could hear was the crackling sound of snow under my shoes. The “normalization” looked perfectly immutable. Even the demonstrations on that day were small and were easily dispersed.

And yet, some thirty years later in New York, the Polish waitress would only dimly remember these words: “stan wojenny”.

The world has changed.

Globalists: Neoliberals in search of terrestrial empire

The recently published “Globalists:The End of Empire and the Birth of Neoliberalism” by Quinn Slobodian charts the history of neoliberalism from its rather humble origins (in terms of intellectual importance, not in terms of income level of its main participants) in Vienna and Geneva to its ascent to a very important if not dominant position in economics, both in theory and economic policy. It is a very well researched book that, I believe, brings even to those who know the essentials of the Mont Pèlerin society, ordoliberalism and Hayekiana lots of new factual information and fresh insights into opinions and, at times, unusual political positions or unexpected bed-fellows of various neoliberal luminaries.

The title puts the emphasis on the global nature of neoliberal thinking. Having, after the end of the Great War, reconciled themselves to the political impossibility of a single worldwide empire that would ensure freedom of commerce, and free movements of labor and capital (a thing which Pax Britannica in the last decades of the 19^th century provided), neoliberals’ ideal world consisted of a “double government”. On the surface, national borders would remain and, with them, all the national symbolism: flags, coats of arms, national language, newspapers etc.; but at a deeper level, there would be no national sovereignty in economic policy-making at all. The world would remain “flat” for the movement of capital, labor, goods and services. Capital especially will have a privileged position: it will be protected against nationalization and abuse by international rules, enjoying to a large degree extraterritoriality as it did in the colonized or semi-colonized countries in Asia in the latter part of the 19^th century.

It its scope and generality neoliberal vision is breathtaking.  But it ran into many problems, particularly after World War II when African and Asian nations became independent, numerically dominant in the United Nations, and keen to extend their newly-won political sovereignty into the economic arena. The clash between the neoliberal ideals and the dominant development paradigms that influenced not only the “new” nations but, through Keynesianism, also the United States, was inevitable. This clash led many neoliberals, especially so Wilhelm Röpke who plays a very important role in the book, but also (to a lesser extent) Mises, Hayek and Friedman to support racist regimes, apartheid, military coups, and to openly stand against one-person one-vote democracy whenever “inferior” classes or races threatened to use it to come to power.

Slobodian shows how, ironically, an ideology that was, in the beginning, general and very abstract (treating in principle every individual the same) and whose many key proponents opposed Nazism and fled  Germany, came, in the 1960s and 1970s, to an almost explicit reactionary, and at times even racist, position. Thus, the support for Pinochet in 1973 was not an oddity, but represented a consistent choice, driven by neoliberals’ increasing rejection of democracy and quasi-religious emphasis on free markets.

The book truly comes to life from Chapter 3 onwards, that is, from the end of the Second World War. In these parts it is a real page-turner. It tackles there the early post-War period and decolonization, the split of the neoliberal camp regarding the desirability of the European Economic Community, neoliberals’ rearguard action against the New International Economic Order and the Group of 77.

The first part (Chapters 1 and 2) deals with the beginning of the movement until the outbreak of the Second World War. I found that part weaker because it concentrates exclusively on neoliberals without situating them in a broader intellectual context. We learn enormous amount about the early evolution of neoliberalism, including most interestingly its close political and financial connection, principally through Mises, to national (and later International) Chambers of Commerce as well as about its short flirtation with economic statistics and empiricism. But we do not see neoliberals’ relationship with other strands of thought: classical Marshallian economics, Keynesians, Marxists, Fascists. We never get the proper measure of neoliberals’ importance nor of their intellectual interaction with the rest of the world.

This is unfortunate because the period was remarkably intellectually fertile and contentious. Neoliberals, though, at that time, represented a tiny, and rather uninfluential, faction—even in their own Vienna “headquarters” where social-democrats, communists and fascists all commanded much greater support. It is thus rather unfortunate that Mises’ debate with Oskar Lange and Abba Lerner about the (im)possibility of economic calculation in a socialist economy does not get even a mention. And yet it was not only an important event in the history of neoliberalism (and indirectly, socialism), but presaged many of neoliberals’ later positions, including Hayek’s seminal work on the nature of economic information. (On that last point, Slobodian leaves the reader in a bit of a quandary as to who was the real innovator there. Walter Lippman’s book An Inquiry into the Principles of the Good Society published in 1937, from which Slobodian quotes several passages, seems to contain key insights—dispersal of economic knowledge, state with a very narrow but powerful role focused on the rule of law—that Hayek formulated in the later years. It would have been nice to have learned a bit more about intellectual precedence on this and several other matters.)

Another part where the book does not, I think, duly account for the interaction (cross-fertilization) between neoliberals and others ideologies is in the discussion of neoliberals’ model of federalism.  As mentioned, it consisted of a “double government” or differently put, “imperium”, that dealt with political, cultural and symbolic matters and was fully autonomous, and “dominium” which was internationally-controlled and dealt with economics. But the idea of a political federation that allows full cultural autonomy is something that goes back to Austro-Marxists who, prior to the First World War, grappled with precisely the same problem but looked at it from a different angle: how to organize a social-democratic federation in a multiethnic state (like the Habsburg Empire).  Both Austro-Marxists and neoliberals came to advocate an essentially identical federal design compatible with cultural and religious freedoms-but, of  course, they diverged on the “dominium” part. For Austro-Marxists it included a strong state involvement in the economy, and for neoliberals none at all—except for the rule of law. It would have been useful to find out more about the mutual influences of the two groups, as well as about the role of others like Schumpeter who straddled the space between neoliberals and Marxists.

The quality of writing is uneven. There are parts of the book that are engagingly written, and cover historical developments very closely. But there are also parts, especially in Chapter 7 which provides a “lengthy exegesis” (to quote Slobodian himself) of Hayek’s writings which are repetitive, boring, and at times even odd. These parts resemble a doctoral dissertation where an eager students shows to have mastered hundreds of quotes from the authors he reviews (probably more than they themselves could remember) but which have very little do to with the subject at hand. One would have liked to learn more about Hayek’s influence in the Thatcher revolution (that goes unmentioned) than on Hayek’s ruminations on epistemology, law, psychology, cybernetics, system theory, brain neurology and the like, complete with his many Greek neologisms and innumerable metaphors (is the human society more like a flock of geese, or like a school of fish, or like “iron fillings magnetized by a magnet under the sheet of paper on which we have poured them”).  

This is an excellent book but if it were shorter, more focused and at times less concerned about providing all the rights citations, it would have gained, in my opinion, in readability and probably in influence.