Germany and Poland Passages to Democracy Comparison Term Paper

Introduction

The paper is aimed at comparing the passages of democratization and economic decentralization in Germany and Poland from 1989 to 2002. In this regard, the political and economic policies passed by these countries are compared and analyzed by using post-behaviorism to find out which of these countries have adopted better political and economic policies to attain democracy and economic decentralization.

The prospects of German future

After the Second World War, the future of Germany was quite uncertain. Even the powers occupying the country at that time were not sure about the upcoming developments. There were no common or agreed-upon plans for Germany’s future because the allies of the occupying powers were divided upon this matter. In the year 1943, a negotiation attempt was made in Tehran by the allies to discuss Germany’s future and come to a common point. Later in 1945 negotiations were held in Yalta and finally it was decided that Germany will be divided into zones of occupation. The allies agreed that France should have its zone, in addition to those of the U.K., the U.S.A, and the U.S.S.R. The Soviet Union and the Western powers disagreed on the issue of reparations and the western frontier of a reconstituted Poland.

In the Potsdam Conference of July 1945, these matters were discussed and America, Britain, and the Soviet Union were agreed that Germany should be regasified, demilitarized, and democratized however there was no specific, workable, and effected uniform policy formulated in the conference regarding the different zones of occupation. It was decided to constitute a council under the control of allies to administer the policies in the different zones. The Soviets asked for compensations from the West to repair their zone whereas the other allies repaired their zones separately.

At the beginning of the 1990s, united Germany became the symbol of a new Europe. The West stood at the victory stand after facing a wave of bloodshed. Europe and Germany have to find their new roles in the new order. West Germany has been economically strong but politically weak since the Nazi period. The effects of the strong political agenda of Germany and its effects in Europe and the world was one of the major issues of the 1990s. Germany was facing three major challenges; the first one was to face and deal with the communists’ legacy of East Germany and the second was to confront a new nationalism and revival of Nazism on the local level. The third challenge was to bring together the people of West Germany with East Germany as a united nation. Despite living as a single country both West and East have developed different political views and there was a great economic and social gap between the two halves and the economic cost was an enormous burden on West Germany.

The elections in 2002 show that after 12 years of unification Germans remain divided in their political alliances and the country had two political systems that interweave with one another. In West Germany, the Christian Democratic Union (CDU), Christian Social Union (CSU), Social Democratic Party of Germany (SPD), Free Democratic Party (FDP) whereas in East Germany Party of Democratic Socialism (PDS) and the Green Party had the national support. It was observed that at the national level CDU and SPD were popular but the Germans were gaining political uniformity quite slowly mainly because the people were dissatisfied with the political process and they saw the politicians as incapable of solving their problems. In 1992 the Federal President Richard von Weizsacker strictly criticized the politicians and commented that they possess just one capability and that is to criticize the others (Dochartaigh, 2004). In Germany political parties receive money from the federal government based on the votes received. Public officials also receive high pay, tax exceptions, party perks, and free railroad passes. The approval rate for the German government reached to low level and a new word “PolitikVerdrossenheit” (Dochartaigh, 2004), or political dissolution was created.

By 1994 Kohl was no longer regarded as a hero in East Germany and the westerner’s stereotypes based on their communist passed was resented. The Easterner’s resentment for a total Western form of life gave birth to the Party of Democratic Socialism (PDS) as the party that exclusively represents the East Germans. The power of the Christian Social Union (CSU), Christian Democratic Union (CDU), and Free Democratic Party (FDP) alliances were declined up to the margin of 3 percent of the vote over the opposition however these parties succeeded to increase their seats from 2 to 10. It was the first time in the history of the Federal Republic that the combined votes of center-right were less than 50% while in East Germany the Kohl government got 42% votes that were 13 percent lower than the votes secured in the 1990 election. When the Bundestag met, Kohl was re-elected as Chancellor and he got just one vote more than the minimum required (Dochartaigh, 2004).

The votes secured by PDS were raised by half and in East Germany, they took 20% votes and became the winners of four electoral districts surpassing the minimum 5% of votes needed nationwide to gain seats in parliament. This victory was caused by social reforms and by looking at the interests of Eastern Germans and at the same time, it was the positives response of Easterners to the political campaign called “red socks” that was spearheaded by the Christian Democratic Union (CDU) claiming that the Social Democratic Party of Germany (SPD) and Party of Democratic Socialism (PDS) had the same political views. (Dochartaigh, 2004)

By the mid-1990s there was an improvement in the economic conditions of East Germany. The parties of the West undermined the PDS since unification, but at the local government level, they mutually cooperated. In the 1994 elections, PDS increased its base, on the other hand, the Free Democratic Party (FDP) and Greens lost their powers because of no economic improvement shown in the mid-1990s.

The results of the 1998 elections created sweeping changes and for the first time in the history of the Federal Republic of Germany, a complete change of government took placed at an election, rather than a reshuffling of coalitions of political parties. The CDU/CSU slumped 35.2%, its worst result ever apart from 1949, while in the East it won 27.3%. The FDP and Greens both suffered minor losses, while the SPD and PDS improved. The Green was able to form a coalition with the SPD, which enjoyed a secure 21 seat majority. Gerhard Schroder became the new Chancellor and Joschka Fischer who was the young radical environmentalist’s protester of the 1970s and the first Green minister at the state level in the 1980s, became Vice-Chancellor and Foreign Minister (Dochartaigh, 2004)

The next four years brought sweeping changes as new legislations put expiration dates on existing nuclear facilities in Germany and terminated plans to build new ones. The coalition by Green and SPD created new laws on citizenship, environmental protection, legal reforms, and immigration reforms. Despite this, the government fails to deal with high unemployment. The SPD/Green coalition kept power by the slightest margin in the Bundestag election of 2002. The persisting high unemployment favored comeback by CDU/CSU and FDP to take power but two events took place that allowed the government to stay in power. The first event was the colossal flooding that devastated East Germany and the rapid response of the government in providing massive relief. The second event was the Iraqi war and the statement of George W. Bush that the war on terrorism includes the government of Saddam Hussein. Schroder and Fischer spoke for a majority of Germans in opposing the idea of war and also expressed opposition in case U.S. went to war without a U.N. mandate. Stoiber and the CDU/CSU were at a loss because instead they reacted and tried to present such a scenario as merely hypothetical (Dochartaigh, 2004). The Green SPD government of 603 seats in Parliament took 306 seats. The CSU/CDU and SPD took 232 seats and the FDP 60 that was 1.2% less than the Green party. However, the CSU and the opposition on the west side of Germany lead the Green/SPD by a slight margin; but the government defeated the opposition on the east side.

The Party of Democratic Socialism could not meet the 5% of the votes to get seats except in two districts of East Berlin. Therefore the PDS managed to gain two seats in the Bundestag because the German government reduced the Easterner’s support to the PDS by redrawing the districts to include East and West. After unification German economists and politicians debated about wages, taxes, and social benefits. The country made fundamental changes in the business sector and political infrastructure. These changes became the cornerstone of Germany’s economic policies for the long term. The government also convinced the unions to transform from demanding better working conditions to higher wages. The unions demanded increased salaries because wages had not improved since 1982, and most German companies had huge profits.

Domestic and international market

The Christians liberal government cut taxes and reduced social security contributions. In 1989 most economists in Germany were casting a bullish economy because the industrial sector had modernized its resources and the consumer purchasing power was increased in the domestic and international market. That was a direct result of the low-interest rates in the United States and the E.U. However as the government plan to announce the policies to increase the demand for goods, the Berlin wall was opened by East Germany. In 1990, Germany’s economy changed from an exporter to an importer of capital. The government injected 180 billion Deutschmarks into East Germany’s collapsed economy. The Bundesbank was forced to raise interests that created an economic crisis incontinent. As a result, the European Exchange Rate Mechanism (ERM) in 1992 broke down, and unemployment increased in neighboring countries that forced these countries to devaluate their currencies.

Italy and the United Kingdom dropped the ERM. On the other hand, French Franc backed by Bundesbank remained there. As a result, it created a Deutschmarks-Franc zone that was the beginning of an E.U. currency unit called Euro. “As early as 1992/1993, the French Central Bank began to adjust its statistical systems and money-supply goals to those of the Bundesbank. The Bundesbank also underwent some changes: it moved towards the French minimal reserve standards” (Furk, Leonhard, 2002). In West Germany, the central bank or Bundesbank played a major role in making microeconomic regulations. It set a fiscal budget and persuaded the unions from not seeking high salaries. The change from communism to the capitalism of East Germany, and the cost of unification became a daunted task for the government and the business sector.

In 1982, the Government adopted the Neoconservative agenda of Britain and the United States. As a result, the state’s radio control ended, deregulation and privatization of public telecommunications were put in place. Also, the government managed to create a budget surplus by the end of the 1980s, allowing it to handle the enormous economical cost made by unification.

The budget surplus went to take over 45,000 East German companies; many West German executives were put in charge of these companies. As a result, 72% of the eastern workforce were laid off. However, the government allocated about 120 billion Deutschmarks to social security and help unemployed eastern Germans. A collapse of the industrial sector in East Germany prevented a large deficit in infrastructure. When the gross domestic product (GDP) in eastern Germany recovered from the initial transformation shock, the relative importance of transfers declined (measured as a percentage of GDP). Moreover, the speed at which converge was taking place also declined.

When these two variables are juxtaposed, one might even surprise that the entire recovery process of the early 1990s was based upon public transfers. Indeed, one might go even further and reach the persuasive, yet ill-conceived conclusion that a higher convergence speed could only be regained by higher transfers. Such an interpretation would however be misleading because it ignores the institutional background of the transfer system and its negative impact on locative efficiency. First of all, it should be noted that both gross and net transfers from western to eastern Germany only declined in relative terms and not in absolute terms. In addition, the main bulk of transfers have been paid for social security benefits, because of the pension system

In the unemployment insurance scheme, large deficits were faced due to the lack of contributors. As long as unemployment in eastern Germany remains at approximately 20 percent, the prospects for reducing these deficits were rather poor., however, it should be noted that the public subsidies to private firms have also been substantially enlarged during the 1990s (Furk, Leonhard, 2002). Furthermore, most Easterners anticipated a higher standard of living by unifying with West Germany. Despite a slight increase in salaries, the living and working conditions did not reach the level of the West and most of the experts predict that it will take years to improve the standard of living of Easterners. The realities for most of them are long hours and lower wages than the rest of Germany and to overcome this they had to adopt a new economic system, institution, law, and compete for a job. The German government opens the centralized economy of the East to globalization and as a result, the economy collapsed to enormous international competition. Within few months many industries moved to other post-communist countries with cheaper labor than Germany and a high rate of unemployment followed East Germany. However employees were not equally affected and the women workers were affected by the highest rates before unification 90 percent of all women were employed, this number dropped to forty-five percent. Also, older males between the ages of 30 to 55 have a higher unemployment rate than those in West Germany. On the other hand, self-employee Easterners benefited from West Germany’s real estate and small business laws. Retirees have also profit from unification; they received pensions equal or higher than most Westerners. As a result, the Eastern economy suffers from depression and lower investment from the West because of high unemployment contribution and pensions. Hence, unification has provided better opportunities for most Easterners, but many problems remain to be unsolved. The following chart shows the interest payments received by the German Government.

Democratization in Poland

To review the Poland democratic transition it is very important to examine the Roundtable agreement of April 16, 1989; the elections of 1991, 1994, 1995; the unions, and the Catholic Church. In 1989, Poland was undoubtedly on the path to democratic transition. In September 1993 it became the first eastern country to elect a post-communist government.

Democratization in Poland was confined by the roundtable in which Poland changed from an authoritarian to a pluralistic government. In the agreement, the Polish were guaranteed freedom of association, freedom of speech, an independent judiciary, and union. It was also allowed for solidarity to function as a labor union and to restore the senate as the upper house with the power to veto the SEJM – the lower house of parliament. It was done to allow fair and semi-free elections for the SEJM. Moreover, the executive office of the President of Poland was also created, the parliament was given the right to select professional judges and submit nominees to the President to fill a court seat.

The Polska Zjednoczona Partia Robotnicza (PZPR) was guaranteed 60% of the 460 member seats of the lower house, 5% to the coalition, and the rest of the seats were guaranteed to the opposition that got 3,000 voter signatures. “The agreement allowed a national state of incumbents including the Prime Minister Mieczyslaw Rakowski to run unopposed and be reelected with a simple majority of the ballots cast. But as the voters exercised their option not to endorse candidates and crossed names off the ballot; only two of thirty-five unopposed national candidates received a majority. At the same time, only three of the government’s candidates for contested seats received 50% of the votes cast. Consequently, the second round of voting was necessary to fill the seats originally reserved for the PZPR coalition (Mongabay communication, 2007).” However with little time before the election solidarity organized and ran a national campaign; As a result, it managed to win 161 seats of SEJM that was opened to the opposition and 99 seats in the senate. Therefore, the PZPR and alliance formed a coalition with Solidarity and form the first post-communist government.

In the parliamentary voting for the new office of president of Poland on July 19, the PZPR-led coalition was erosion when 31 members of the coalition refused to support General Jaruzelski, the unopposed candidate for the post. The solidarity leadership believed that Jaruzelski was the best candidate for the presidency as he could best ensure that the PZPR would honor the concessions he had made in the Round Table Agreement. He was the candidate least likely to alarm Moscow and through careful polling, solidarity engineered a one-vote margin of victory for Jaruzelski (Mongabay communication, 2007).

The October 1991 election was highly divisive and resulted in 29 candidates competing for 460 seats in the SEJM. As a result, 5% level for single parties, and an 8% level for coalitions would cover the 391 seats, the remaining ones would be divided between the parties that got 7% of the national vote. Thus, new electoral laws were drafted for the 1993 elections; in which the conservatives lost the election to the first post-communist government form by the coalition of the Democratic Left Alliance (SLD) and the Polish Peasant Party (PSL) as they came to power because of the high unemployment, corruption scandals, new electoral laws, opposition to the Catholic Church, fragmentation of the right, and the high crime rate. Also, the SEJM went from 29 parties to six, this made it practical to form a coalition and efficiently managed the lower house.

Waldemar Pawlak was the first prime minister of a post-communist coalition and the leader of the PSL. On October 21, 1993 communists’ coalition agreed that the LSD will monitor the decentralization of state companies and reforms to the financial system. On the other hand, the PSL will manage foreign trade, central planning, administration, and the agriculture sector. However bitter disputes fracture the coalition over the economy due to the local government PSL appointments of members to public administration and government ministries. In addition, the PSL considers the agriculture sector as the ancient of the economy and opposed the elimination of farm subsidies.

Furthermore, there were deep divisions in the Polish Peasant Party; on one hand, there was Roman Jagielisski the Minister of Agriculture and a strong supporter of modern large-scale farming and on the other hand, there was Pawlak an advocate of small-scale farming. The Minister of agriculture was not committed to privatization but pressured by the European Union. While facing an economic crisis he had no choice. Pawlak signed the Mass Privatization Program (MPP) in 1994. A relationship between President Lech Walesa and Prime Minister Waldemar Pawlak reached a low point in 1995. Moreover, numerous corruption scandals implicating Pawlak forced Walesa to demand the prime minister’s resignation in March 1995. Pawlak was replaced by ex-communists Jozef Oleksy. Walesa faced an uncooperative SEJM and threatened to take over the responsibilities of the Prime Minister if a new government was not formed soon.

In July 1995 the lower house of parliament reached an agreement to form a coalition made by the Christian National Union (ZCHN) and the Democratic Union (DU). The name Hanna Suchocka as prime minister. Despite having objections Walesa had no choice but to support the new government. However, he declared a vote of no confidence and ended the Suchocka government. Furthermore, Walesa dissolved the SEJM rather than asking them to form a new government. He also attempted to pass a new law for the creation of presidential rule bringing the democratization process of Poland to chaos.

In the presidential elections of 1995 opposition to Walesa reached the highest level. The Polish people blamed him for the deficit problems, the veto war, and for dissolving SEJM. Political experts agreed that the removal of Pawlak was a political moved to bring Alexander Kwasniewski as Prime Minister; thus removing a rival in the presidential elections of 1995. Walesa promoted himself as the candidate of the Post-Solidarity coalition and the alternative to the post-communist led by Kwasniewski. On November 19, 1995, both candidates did not get the majority of the votes in the first round whereas in the second round Walesa lost to Kwasniewski backed by Catholic Church.

In 1991 the small-medium enterprise (SME) employed 60% of the workforce and provided 50% of Poland’s GDP, but most workers were not happy with the working conditions, salaries, and entitlements. The two major unions All Polish Alliance of Trade Unions (OPZZ) and Solidarity (NSZZ) have their support base in the public sector. The LSD gave political support to the OPZZ and in return, they promised not to strike. On the other hand, the NSZZ gets most of its support from the public sector, coal mining, the steel industry, and the Catholic Church. However, solidarity tried to gain political influence in the SEJM but managed to gain only nine seats. Moreover, NSZZ backed President Walesa for the presidential election of 1995 in return for political support. Solidarity organized several protests calling for the ratification of the Pact on state enterprise. The coal miners, steelworkers, and the workers of a tractor plant went on strike and clashed violently with the police.

The Catholic Church was part of the resistance against the PZPR, but after 1989 the church assumed a social agenda and by supporting the National Christian Democrats the Catholic Church was able to pass laws banning abortion and to allow public schools to teach religion. As a result, the Polish people demanded the separation of state and church. Many bishops blamed Cardinal Glemp for driving the church to a confrontation with the government and undermining its role in Polish society.

The Poland government in 1989 began to privatize and liberalize the economy. The reforms implemented by Poland created small and medium private enterprises (SME). These companies became the core of the Polish economy and created new jobs. As a result, the economy became decentralized and a new strong middle class developed. The history of the Polish SME sector dates back to the late 1980s when the law on Economic Activity was adopted on 23 December 1988. The law changed the general conditions for business operations in Poland and also considerably reduced the economic role of the state and stipulated freedom of economic activities. However, some enterprises are required to get a license from the government such as arms, mines, airlines, and security escorts.

Another reform that contributed towards the increase of SMEs was a simple tax code and the development of an accounting system. The Polish government went out of its way of reforms to support small and medium companies in the field of microeconomics, legal assistance, budgets, and finances. In 1995 the Polish agency for small and medium companies was formed. Its objectives were to improve the quality of the SME to compete in the European market.

Foreign direct investment in Poland

In 1997 the National Credit Guarantee Fund of the National Economic Bank was established to guarantee bank credits for Polish companies and municipalities. The guarantee covered investment credits to finance the purchasing of raw materials for production. The credit can be extended by Polish or foreign banks in national or foreign currency. Moreover, the Techniques and Technology Agency also started its activity at the beginning of 1997. The major objective of the Agency was the promotion of modern and innovative techniques and technologies to increase the competitiveness of Polish products.

The government promoted the development of SMEs in rural areas by introducing favorable guarantees on the local funds. A monitoring system was also developed called the Polish Central Statistical Office (GUS) to gather the financial data on SMEs. This system was supported by the ministry of economy. Both agencies developed a new program to help SMEs and in this regard, they addressed some of their problems in 2002 such as lack of investment assets due to taxes and financial code and financial burden on SMEs due to poor credit extensions.

The fundamental objectives of the program were composed of three sub-goals. The first goal was to assure that the SMEs would increase their competitiveness through new technology and by reducing labor costs, assets to markets, and promoting new business. The second goal was to encourage increased exports of SMEs by creating goals, products, providing data on export opportunities especially in the E.U. market, support to investors, bank credit, and provide assistant to SMEs to qualify in E.U. programs. The third goal was to make sure that the SME sector will get assets to invest by providing tax incentives for investing; and easy assets to finance from banks, capital markets, leasing, and venture capital funds.

The Polish government also created the Business Information Network (BIN) to provide business information to SMEs. The BIN network provides entrepreneurs data, professional assistance, marketing expert, and technology consultant. The Polish government established low interest for the creations of small and medium enterprises and loans were guaranteed up to 50% by the Polish government at a rate lower than the market. The main objectives of these loans were to reduce the 11.4% unemployment rate of 1999.

“It is particularly relevant to look at the types of pressure that E.U. accession puts on Poland. There are two types of pressures that are related to FDI. First of all, Polish companies will face increased competition as the competition rules will have to be harmonized. Despite early liberalization, there still exist aspects of protectionism in Poland and elements of soft budget constraints, for instance in the energy, mining, shipbuilding, and steel sector.

There is also strong pressure to invest in the above-mentioned sectors, many of which have received only little foreign capital so far. Food processing is an industry that has attracted much FDI but in many sub-industries, it has shown itself to be fairly uncompetitive and will be squeezed due to several reasons like due to increasing primary agricultural prices and the high competition from food processors in the E.U.

Mining and shipbuilding represent another example of sectors that will come under major competitive pressure and therefore, should attract foreign investment. The second type of pressure that will call for investments, especially foreign investments, is that related to meeting the “acquis communautaire” requirements in the run-up to E.U. accession, especially in the area of environment. Estimates show that it will be very costly for Poland to meet these E.U. standards, particularly in the steel, chemical, and power sectors. According to estimates, up to 80 percent of these costs must be borne at the municipal level. At the same time, it is unlikely that the municipal budgets will be able to bear the required levels of investment. Hence, it is important to open up these sectors for foreign investors. The following chart shows the FDI inflow in Poland contributed by different countries.

There was also a lack of a uniform definition of SME limits investment that is very crucial for a clear and general definition for the transitional period in inducing economic development and investment. Poland’s economic law defines a small enterprise as having a labor force of less than fifty-one and a medium enterprise made up of fifty-one to two hundred and fifty. E.U. advised Poland that they need to modify their definition of SME and add an annual balance sheet and turn over in it. The Polish government was also required to spend 2% or more of GDP on science and technology like the rest of Europe, resulting in a limitation of research that can benefit SMEs. In addition, the majority of small and medium enterprise’s shares are traded in the distribution sector and these are very low in the manufacturing sector. The lengthy business litigation also hinders economic transition and investment; worsened by the lack of professional consultants.

The analysis of the policies of the German and Polish governments revealed much turmoil endured by these governments in the context of democratization and decentralization of their economies. It could be concluded from the above discussion that Germany could reach full democracy and an economic market before Poland and this prediction is based on the examination of the political and economic policies of both countries.

Germany has managed to provide political stability throughout unification and the democratic transitional period. However, the 2002 elections showed that after 12 years of unification Germans remained divided in their political alliance and they had two political systems that interweave with one another. On the West it is made up of the CDU, the CSU, the SPD, and the FDP; on the other hand, the PDS and the Green Party made up the East. However, the government coalition formed by the SPD and the Green Party was able to reduce the Easterner’s support for the PDS by redrawing the districts to include the East and West of Germany.

Furthermore, democratization has not generated a populist quagmire. Germans have not supported extremists as the communists on the far-left or Nazis on the far-right. All political parties accepted the institutional rules. The change from communism to the capitalism of East Germany and the cost of unification has become a daunted task for the government and the business sector. As a result, the old economic system of cooperation between banks, industry, and labor unions; which resulted in the enterprise co-determination, capital tax exception, and lower interest rates were replaced by a stock market principal. Therefore, in 1999 shares became the currency for industrial takeovers and the volume of the mergers was ten times greater than the volume in 1989.

Poland, on the other hand, has gone through seven prime ministers, six cabinets, and three elections till 1995. Thus, the democratization process in Poland could take any course. However, most of the Polish people are not influenced by extremist and populist Presidents offering quick solutions to their problems. In addition, both political parties and elites have embraced the political system. The Poland government has not been able to pass a post-communist constitution due to the fierce debate. The danger is that the longer it takes them the most likely the Polish people will come alienated and will regard voting and democratization as pointless. This could create democratic instability and a return of an authoritarian or populist form of government.

In 1989 Poland began privatization and liberation of its economy. These reforms created small and medium private enterprises SMEs that became the core of the Polish economy by generating 60% of all new jobs. In addition, the government privatized the bank to promote competition but the largest investor in the banking system is still the government. Thus, the Poland government relies more on the fiscal program to achieve economic growth rather than reliance on the financial market. This policy is an obstacle to a free enterprise that can invest resources in areas that can create higher profits.

Conclusion

As a result, most foreign investors are reluctant to invest due to social unrest, political instability, and labor strikes organized by solidarity. In addition, Poland has been slower in large-scale privatization and in restructuring the energy, mining, shipbuilding, steel, and telecommunication sectors. Thus, Poland has not been able to lower the high unemployment rate and it lacks the agency and economic support to promote job creation programs. Instead, the Polish government relies heavily on public assistance.

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