A Note in the Polish State-Owned Enterprise Sector in 1990

This paper presents a preliminary analysis of the performance of the Polish state-owned enterprise sector in 1990, with particular attention to wages, output, profitability, and the contribution of enterprise taxation to the state budget. A new piece of empirical evidence presented in the paper is an index of industrial production by the state-owned sector calculated by the author using data on physical output of principal products. The main points of the paper are: (1) Polish state-owned enterprises are "worker-managed firms". This helps explain some of the peculiar features of enterprise sector performance in 1990: high profits and the absence of bankruptcies despite a huge drop in output; a very large drop in real wages January 1990 followed by a steady increase and the consequent failure of the Government's tax-based incomes policy to be binding constraint until late in 1990; and the slow rate of labour shedding. (2) The author's industrial production index shows a drop in state sector output in 1990 of about 21%, not much less than the 25% drop in the official industrial sales index. Gershenkron-type biases are apparently small. (3) The use of monopoly power by these worker-managed firms may possibly account for some, but not most, of the decrease in output. (4) Wage movements explain much of the movement in enterprise profitability in 1989-90. In particular, about 2/3 of the drop in profitability over January-December 1990 can be accounted for by an increase in real wage costs, and about 1/3 to an increase in the real exchange rate. Other factors were also at work, however. (5) The most important consequences of the rises in the real wage and real wage costs were, first, the shift of tax revenue from profit taxes to wage taxes, and, second, the spending of most of the additional wage tax revenues on higher real pension payments because pensions are indexed to the wage. It is estimated in the paper that by the end of the period January-December 1990 this process had added something like 7% to the monthly central budget deficit. This shift in the division of enterprise surpluses from profits to wages thus contributed substantially to the emergence of the current budgetary problems.