Making Deals in Poland

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.