The Legal Framework For Private Sector Development In A Transitional Economy The Case Of Poland

Poland is rapidly developing a reasonable legal framework to support its transition to a market economy. Yet legal practice lags behind. Precedent and expertise must be built through training and experience.

The central theme of this paper is the role of the new, entrepreneurial private sector, established after the fall of communism, in output recovery, and, more generally, in economic expansion of post-communist economies. This role is considered specifically in the context of the successes in Poland, the Czech Republic, and Hungary. The author notes a substantial difference between the performance of the new private sector and the privatized sector in the short to medium run (3-7 years) from the start of privatization. New private firms typically enter the economic game with well-established de jure and de facto property rights and with industrial relations based on market economy rules. Unlike the public sector or privatized firms, the labor force of these firms is not demoralized by the change to market-economy rules. As a result, they often perform better and are quick to increasing their share of aggregate output. This also helps the economy as a whole emerge earlier from transitional recession. The author discusses two hypothetical paths of recovery and expansion; one with and one without a dynamic new private sector. The determinants for establishing and growth of new private firms are considered. In addition to the specific rules and general framework of transition, the study concludes that broad institutional fundamentals of political liberty, law and order, and trust contribute to the successful emergence of this new entrepreneurial sector.

Financial indicators may be linked to growth through two "channels" in particular: the share of GDP allocated to investment and the efficiency with which resources are used. It is empirically important to identify which financial intermediaries are doing the intermediation and to whom the financial system is allocating credit rather than simply using proxies for the overall size of the financial system, as has been common in past studies.

Correlations across openness measures are sometimes weak, but openness does seem to be positively associated with GDP growth - the more open the economy, the higher the growth.

The costs of the present system of price stabilization of raw jute by Bangladesh's public sector do not yield the expected benefits. Price stabilization could be better handled by the private sector. In any case, the loss of welfare to jute growers from price fluctuations is small.

Do rules control power? Or apply power? Has the elaboration and application of GATT rules been an exercise in the application or the control of economic and political power?

Economic initiative has passed from the center to the republics, some of which have already moved from legislation to implementation of their own republic divestiture policies. In an optimistic scenario, this trend will continue. But even under the most pessimistic scenario, it is unlikely that privatization processes identified in this study will be stopped.