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This paper was prepared for the Seventh Annual Conference of the Leibniz Institute for East and Southeast
European Studies “Firms and Social Change in Eastern and South-Eastern Europe. Historical, Political and
Economic Perspectives,” Regensburg, May 23-25, 2019. The paper is partially based on the draft version of
Kozarzewski et al. (2019); the paper also uses some results of the research conducted in the framework of
the project The Phenomenon of “The Return of State-Owned Enterprises” in Contemporary Economy: Iden-
tification, Characteristics, and Consequences for the Economic Theory and for the Theory of Economic Pol-
icy financed by the National Science Center, Poland. Corresponding author: Piotr Kozarzewski, pi-
otr@kozarzewski.org.
Return of State-owned Enterprises in Poland
Piotr Kozarzewski, Maciej Bałtowski
Maria Curie-Skłodowska University (UMCS), Lublin, Poland
The paper is devoted to the process of increasing involvement of the Polish
state in the enterprise sector which is a reversal of de-statization trends of the
first quarter of a century of post-communist transition in this country. Despite
growing statism which during the last decade can be seen in economic policy
in many countries throughout the world, including the growing role of the
state as an owner of enterprises, and enjoys the interest of researchers, their
attention usually omits developments in Poland, let alone their main causes.
The goal of this paper is an attempt to at least partially fill this gap through
analyzing the ways and methods of the “return of state-owned enterprises,” as
well the main driving factors of this change through the perspective of state
capitalism and institutional economics approach. The paper concludes that
this “return” has its quite unique path and causes which originate from unfin-
ished post-communist transition and peculiarities of private interest groups
formation. The paper contributes to the studies on post-communist economies
and varieties of state capitalism through extending the volume of knowledge
on the state involvement in the economy at a micro level.
Keywords: post-communist transition; Poland; state-owned enterprises, rent-
seeking, state capitalism.
JEL Classification Codes: P20, P26, P27, D72, H10.
1. Introduction
The former leader of market transition, Poland, together with another former leader, Hun-
gary, now is moving away from neoliberal values towards a wide-scale state intervention-
ism and even authoritarianism. Since the late-2000s, certain statist tendencies could be
seen in a number of developed market economies as well, but, firstly, they had mostly
temporary character being a part of crisis management strategies. Secondly, in Poland,
Hungary and some other post-communist countries (Russia also being a notable example),
2
these changes went far beyond the scope which can be found in the great majority of de-
veloped capitalist countries, and they seem to be of a more fundamental character. In Po-
land, it manifested itself first of all through the “return of state-owned enterprises” (the
term coined by Flores-Macias & Musacchio, 2009), i.e., in the increasing scope and im-
portance of state-owned enterprises (SOEs) in the economy, growing role of the state as
entrepreneur and investor. These areas are still understudied, a lot of knowledge gaps still
exist. The first one is lack of proper attention to the statist developments in the CEE re-
gion, especially to the SOEs sector and its growing importance in the economies and eco-
nomic policy (Daiser et al., 2017) – Poland undoubtedly being one of these understudied
countries. The biggest “state capitalists” such as China and Russia are still more attractive
objects of research, even if Poland (together with Hungary) may be a regional trendsetter.
The second gap is lack of the proper theoretical perspective for explanation of the “return
of state-owned enterprises” and generally statist turns in transition countries. Apparently
varieties of capitalism (VoC) and state capitalism (SC) approaches have essential potential
here; however, the “mainstream” studies on CEE which use these perspectives (Farkas,
2016; Rapacki, 2019) neglect state ownership of enterprises and generally the role of the
state in the enterprise sector. In quite scarce literature devoted to Poland (written almost
solely by Polish authors) these issues have been tackled (Bałtowski & Kozarzewski, 2016;
Szarzec & Nowara, 2017), as well as growing statism in the economic policy of the gov-
ernment (Kozarzewski & Bałtowski, 2017; Błaszczyk, 2017), but they there were not ade-
quately put in a more general theoretical perspective.
Another obstacle is problems with these perspectives themselves: the VoC approach
emerged as a way to describe developed market economies, and not transition or emerging
ones; the SC perspective in fact is a quite motley conglomerate of different perspectives
with limited compatibility with each other: there is no even a clear commonly accepted
definition of what state capitalism is.
Another promising theoretical perspective is institutional one, which pays attention to the
institutional quality of economies and rent-seeking and private interest group issues, stud-
ies inspired, among others, by the seminal paper by Hellman et al. (2003). This theoretical
background seems to be well-elaborated; however, so far no synthesizing study on Poland
using this perspective exist; only selected issues have been studied in detail (Kozarzewski,
2006, Section 6.4; Senderski, 2015; Bałtowski & Kozarzewski, 2016). All this leads to a
high degree of fragmentation of the existing studies both from the point of view of topics
3
covered and theoretical background used. While there are good analyses of how SOEs
function, ownership policy of the state as a part of its economic policy and their roots are
among the most understudies topics. One more problem is availability of studies: there are
quite a lot of publications devoted to the SOE sector in Poland which are not present in the
world literature debate because they have been written in local language – e.g., Błaszczyk
& Kozarzewski (2007), Bałtowski & Kwiatkowski (2019), and Kozarzewski (2019).
The task of the paper is to try to at least partially fill some of these gaps and its structure is
subdued to this goal. Section 2 is devoted to state capitalism concepts as a possible theo-
retical background for the study on the growing importance of the state as the owner of
enterprises. Section 3 contains an overview of the evolution of the policy of the Polish
state towards SOEs in the course of transition. Section 4 shows selected specific features
of the Polish state as the owner from the SC perspective. Section 5 discusses the role of
SOEs in rent-seeking presenting the main private interest groups and types of redistributed
resources. Section 6 concludes. The main conclusion is that in Poland the “return of state-
owned enterprises” had its quite unique path and causes which originated from unfinished
post-communist transition and peculiarities of private interest groups formation.
2. State Capitalism Concepts and their Applicability to the Study
2.1. Definitions of State Capitalism
In the contemporary economic and political science literature, the term “state capitalism”
is used in two different meanings that are referred to in this paper as narrow and broad
sense. These are often confused, even the same authors make alter definitions of state
capitalism in their analyses. In this paper both meanings of the term “state capitalism” are
used while explicitly distinguishing between them.
In broad or systemic approach, state capitalism is understood as a special form (type) of
economic system, which, especially following the financial crisis of 2008–2009, devel-
oped in many countries worldwide, particularly in China, as well as in some Third World
and post-communist countries. State capitalism is an economic system where both the
state’s functions and the scale of its intervention in the economy are incomparably larger
than in liberal economies of free market capitalism, and state functions, as a rule, signifi-
cantly go beyond the market failure areas. Such point of view is adopted (without naming
it a broad approach, as this paper does), for example, by Bremmer (2010) Kurlantzick
4
(2016) and Musacchio et al. (2015), refer to such a situation as “state strategic involve-
ment.”
In the narrow approach relating to the microeconomic level, state capitalism stands for the
state having an active impact on the corporate sector, which goes beyond the contextual
standards, mainly by means of ownership or quasi-ownership tools rather than, as is the
case in the traditional free market capitalism model, regulatory ones. As Musacchio and
Lazzarini (2012, p. 3-4) put it: “We define state capitalism as the widespread influence of
the government in the economy, either by owning majority or minority equity positions in
companies or through the provision of subsidized credit and/or other privileges to private
companies.” From this perspective on state capitalism, of key importance is the relation-
ship between the state and the largest and most important enterprises (Bower et al., 2011;
Kurlantzick, 2106). In the paper, the narrow meaning of state capitalism will be used,
bearing in mind that changes on the micro level may induce changes at the macro level,
i.e., development of state capitalism in the narrow sense may promote systemic shift to-
wards state capitalism in the broad sense.
2.2. Tools of State Capitalism
Narrowly defined state capitalism is implemented through the entities of two kinds which
exert corporate control over state enterprise sector. The first type is formal state executive
power structures: the government, respective ministries and government agencies. The
second type is composed of various state-related entities that operate informally or not
fully formally: political bodies that wield real power in the state (e.g. ruling party execu-
tive), state officials furthering their individual goals and interests, state-tolerated interest
groups at the level of state-owned enterprises, etc. In economies characterized by high in-
stitutional maturity, e.g. in Western European countries, this second group of entities has a
minor or even marginal importance. Meanwhile, in countries where institutional quality is
poorer, and the operating principles of liberal capitalism have not been rooted in their his-
tory – in Third World countries as well as in Russia and some post-communist countries –
the influence of both groups is clearly visible and significant. Moreover, the objectives
and outcomes of both groups’ actions may be often quite conflicting. For example in Po-
land and in other CEE countries, actual property rights in subsidiaries being part of state-
owned holding groups, though vested formally with the holding group’s management
board, are often the outcome of a power struggle between different types of governmental
and political entities, and even private individuals. This control can be in the form of own-
5
ership-based or non-ownership-based (quasi-ownership-based) control. The first type of
control, typical of the developed liberal capitalist economies, stems from the state holding
a stake (100% or majority shareholding) in the company. The second type of control, often
found in countries at a lower level of development, including Poland and some other CEE
countries, consists in the state using, with respect to formally privately-owned listed com-
panies, the phenomenon of control leverage (also voting power leverage), i.e. gaining sig-
nificantly more corporate power than warranted by the (minority) stake held by it. This
group also includes companies in which the state has no shareholding but it controls them
indirectly (they are formally owned by entities that are independent from the state).
In narrowly defined state capitalism, the state’s impact on the economy is based mostly on
the use of ownership and quasi-ownership tools:
(1) Majority ownership.
(2) Non-ownership tools of corporate control.
(3) Limiting private entities’ property rights.
(4) Specific (targeted) regulatory tools.
(5) Persuasion-based (power-based) tools.
2.3. Basic Elements of State Capitalism
Based on the analyses of the state-economy relationship in different countries and political
systems, the phenomenon of state capitalism may be described through six features, or
basic elements. Each of them involves relevant groups (types) of beneficiaries of a specific
state activity. Some of these features exist ‒ with varying intensity ‒ both in liberal de-
mocracy and in authoritarian or semi-authoritarian systems, while others are characteristic
of only the latter ones All, or at least most of them, can be identified and analyzed in tran-
sition countries’ economies, including Poland.
Politicization of SOEs: the existing stock of SOEs is treated by the authorities as a source
of different types of economic rents. Most often, it boils down to appointing high-ranking
state officials or party officials (as well as individuals indicated by them) to positions on
supervisory boards and management boards of state enterprises or just to offering relative-
ly well-paid jobs in the public domain to those individuals (nepotism). Political capitalism
also involves state enterprises funding, through advertisement or sponsoring, events and
activities to improve the image of those currently in power or even of specific politicians.
6
Political capitalism à rebours (the term coined by Bałtowski & Mickiewicz, 2009) means
the opposite phenomenon where the state’s beneficiaries are state enterprises themselves
and their staff. Well-organized employees of SOEs, and often also their senior executives,
exert all sorts of pressure on politicians and civil servants exercising property rights on
behalf of the state. The objective is to preserve the privileges held or to make the state
owner give up on the necessary restructuring processes, which would usually entail lay-
offs. Politicians’ “forbearance” with respect to pressure from staff is the cost – paid from
the budget – of easing tensions or of buying voters’ support.
Cronyism: the group of beneficiaries includes economic entities from outside the public
sector. Following a decision by the state and by other state entities (SOEs, state agencies
etc.), “crony” private entities are contracted, usually without a tendering procedure or with
a fictitious one in place, to provide a broad range of services to the public sector. They in-
clude tasks such as supply of goods, legal and image-building services, sale and distribu-
tion of products on a fee basis, general contractor services for public projects, as well as
facilitating access to loans granted by state banks to selected private companies.
Oligarchy is an advanced form of cronyism. The difference consists, firstly, in the much
larger scale of benefits reaped by private entities. Beneficiaries of cronyism are usually
private entities that are anonymous to the public, whereas enterprises controlled by oli-
garch entrepreneurs who enjoy trust of the highest-ranking politicians (“friends of those in
power”) are usually listed among a country’s largest private enterprises. Secondly, oli-
garchs also display – unlike cronyism beneficiaries – close relations with the ruling elites,
and have a real, very significant influence on the shape of economic policy.
Economic populism arises where beneficiaries of a specific type of state impact on the
economy, in a short-term perspective, as a rule, are all citizens, mostly the less affluent
groups, which usually do not vote in parliamentary elections or do not have clearly de-
fined political sympathies. The purpose of the state’s paternalistic activities is to win elec-
toral votes of those very groups of citizens. The existence of a significant number of SOEs
in the economy plays a major role here. It gives a real possibility to reward one’s partisans
with jobs, also many low-paid ones.
Economic nationalism means the state exerting an impact on the economy which de-
clared objective is to enhance, in the long run, the state’s political capacity, military power
or international importance. In this respect, the state itself may be treated as the major
7
beneficiary. Here, the role of SOEs, especially that of the so-called “national champions,”
is naturally significant. They are important tools for building power and national pride,
and they are meant to “protect” the national economy against “the exploitation by foreign
capital.”
These features of state capitalism in transition countries are closely connected to each oth-
er and private interests groups may benefit not only from “their” source of rents and privi-
leges. One of the biggest beneficiaries is groups related to SOEs: they may obviously ben-
efit at least from four out of six basic elements of state capitalism – although SOEs may
benefit also from entering into arrangements with cronies and oligarchs.
3. Evolution of the Polish SOE sector in the Course of Transition
3.1. The Starting Point: The Declining Stage of Communism
By the end of the communist era, Polish economy was an incoherent mixture of command
and market or quasi-market mechanisms. By the end of the 1970s, the inability of central
planning to meet the development goals became obvious after the collapse of the techno-
cratic reforms based on access to Western capital and technology. Since then decentraliza-
tion measures were gradually, albeit inconsequently introduced. The government has lost
its discretionary power over SOEs as early as in 1981 when they were turned into self-
governing and self-financing entities with only limited tools of control left – dispersed
among numerous state agencies. In the 1980s, most forms of discrimination against non-
state forms of ownership were abolished. In 1988, the Law on Economic Activity official-
ly declared the freedom of entrepreneurship introducing the free-market principle “every-
thing is allowed apart from what is forbidden by law.” In the same year, restrictions on
FDI were lifted. The scale of centrally regulated prices was gradually declining and in
1989, the last decision of the last communist government was partial liberalization of con-
sumer prices. Resignation from the direct control over the key parts of the economy such
as enterprise sector without introduction of consistent changes into the system, including
institutional ones, made things even worse breaking the integrity of the system. It created
ground for abusing the economy by various rent-seeking groups both in the enterprise sec-
tor and the state bureaucracy which “privatized” profits from economic activity (some-
times literally, through “nomenklatura privatization” – tunneling the SOEs assets by their
managers to private companies founded by them) and access to resources, while transfer-
ring the costs to the society.
8
Comparing to the other communist states, the share of the private sector in the People’s
Republic of Poland was quite big (18.8% of the GNP in 1988), especially in non-industrial
sectors. In 1988, the share of private entities in industry was 8.6% of the GNP in industry
(mainly small craftsman’s businesses), 26.8% in construction and as high as 79.1% in ag-
riculture (Bałtowski & Kozarzewski, 2014). It should be noted however that private busi-
nesses were, on the one hand, under a tight control of the government, but on the other
hand, very high entry costs, which were imposed by the communist state, to a large extent
protected them from competition.
3.2. Evolution over Time
The reformist government which formed in autumn 1989 had therefore a dual task of
overcoming the economic crisis and building the new system which would ensure stable
economic development of the country. The main concept of the reforms was based on the
Washington Consensus principles and aimed at creation of liberal market economy. The
reforms consisted of the three pillars: stabilization, liberalization and institutional reforms,
in which privatization (both of SOEs and as creation of green field businesses) played the
major role. Unlike many others countries in the region, Poland resigned from a wide use
of wholesale methods of SOEs privatization and generally from attempts to obtain the
highest possible speed of privatization, especially of medium and large enterprises. It was
believed that quality of privatization deals was essential in order to meet their economic
and social goals; also a favorable institutional environment for business activity should be
created, including financial markets. It was believed that when SOEs are subject to hard
budget constraints and devoid other privileges, including their monopolistic positions,
their rapid privatization seized to be urgent.
Since the very beginning of the transition, ownership policy of the state was concentrated
on privatization. The government looked for efficient strategic investors for the large and
most important medium-size enterprises which because of the lack of domestic private
capital and relatively favorable investment climate contributed to massive inflow of FDI
(also as green field investments). It created a FDI-led development path.
At the same time, little was done to consolidate corporate governance of the state – par-
tially due to the belief that the SOEs problem would eventually “solve by itself” in the
course of privatization. Since the early 1990s, the state’s control over commercialized
SOEs started to politicize and the foundations for gradual re-statisation of the Polish econ-
9
omy were created. In the first half of the 90s a certain consensus among the main political
forces has formed which treated SOEs as a bounty of the winning party through nominat-
ing “their” people on the SOEs boards – with the Ministry of the Treasury playing the role
of distribution of these bounties. Change of the ruling coalition led to appropriate mass
changes on these boards which were tolerated by the losers. This arrangement proved to
be very stable and survived till now – apparently due to efficient political competition
which meant for every ruling party that sooner or later it would be in opposition again. At
the same time, also since the early 90s, attempts were made to restrict privatization of se-
lected large enterprises because of their allegedly strategic role in the economy. It was ac-
companied with partial recentralization of selected industries which were under the state
control (coal mining, sugar, petrol, ferrous metallurgy and banking) officially in order to
facilitate their restructuring, to reduce costs, to increase their value before privatization
etc. In practice, this policy led to the creation or consolidation of powerful interest groups
both within sectors and among the political elites which in many cases stopped both real
restructuring of SOEs and their subsequent privatization. Nowadays, coal mining and pet-
rol industry still stay mostly concentrated and state-controlled. In non-ownership means of
the state intervention in the economy initial liberalization of business activity was subse-
quently limited by introducing tighter legal requirements, among others increasing the
number of licensing requirements – many of which are still in force. Despite these statist
tendencies, during the 1990s the Polish economy as a whole was steadily de-statised, pri-
vatization covering the increasing number of SOEs, including sectors which previously
had been a privatization taboo, such as banking and energy.
In the new century, the statist backsliding continued: political carousel on SOEs boards’
nominations intensified, politically important SOEs got official and unofficial support and
privileges. In return, SOEs started to be more actively used as a source of budget reve-
nues. In the 2010s the statist backslide evolved into gradual change of the paradigm of the
role of the state in the economy, especially in the enterprise sector. Before that, in the offi-
cial discourse SOEs were treated rather as a necessary evil which had to withstand market
failures. Now, the state no longer withdraws from direct control over business entities. It
stays a powerful player on the market for a longer perspective – and even tries to expand
its role – among others, it led to gradual slowdown of privatization, up to its complete halt
in 2015. Instead, the state began regaining control over previously privatized companies,
especially in the banking and energy sectors. Growing statism is accompanied with a kind
10
of economic xenophobia, claims that only domestic capital (which in practice was state
capital) in key sectors of the Polish economy can secure the country’s vital interests – not
only economic, but also social and political. This turn was completed by the PiS (Prawo i
Sprawiedlowość – Law and Justice) government which has formed after this party and its
allies had won the 2015 elections; it meant the final resignation from the FDI-led devel-
opment path (openly challenged as harmful for the Polish state interests) replacing it with
state capitalism policy. Centralized regulation and state investments started to be treated as
the main vehicle of development and superior towards market mechanisms and private
property (especially of foreign descent).
The history of the changing policy of the state towards enterprise sector and particularly
SOEs in the course of the Polish transition shows two peculiarities. Firstly, its highly evo-
lutional character: market reforms led to gradual dismantling of the statist order which had
formed under communism; but as early as in mid-1990s new statist tendencies started to
develop, leading to qualitative change of the system in the second half of the 2010s. Sec-
ondly, the reasons for this statist shift cannot be reduced to ideological issues and rivalry
between the main groups of Polish political elites, because of very high degree of conti-
nuity between the policies of the subsequent ruling coalitions – regardless how strongly
they stressed their ideological detachment from the predecessors.
3.3. The Present State
According to estimations (Bałtowski and Kozarzewski, 2016), the formal ownership struc-
ture of the Polish economy, as measured by full or majority stakes in enterprises, appears
quite similar to that of the developed countries of Western Europe. The share of SOEs in
the non-financial sector is approximately 9-11%, regardless how it is measured (share in
the GDP, employment etc.). However, there is a quit big number of enterprises (especially
among the largest companies) which are formally private (majority ownership belongs to
private investors) but the state – using various non-owner tools – exercises control over
them. Bałtowski and Kozarzewski (2016) call such companies state-controlled enterprises
(SCEs), leaving the term SOE only to describe companies with the majority ownership of
the state. Observing SCEs companies for a longer period shows that the way they function
is very similar to the functioning of SOEs. The boards of these companies are subject to
politically motivated personnel decisions; the state de facto determines their development
strategies, it is also the state that decides every year on the amount of the dividend these
companies will pay out.
11
The main reason for SCEs existence was so-called reluctant privatization, the term coined
by Bortolotti and Faccio (2009) when the government, seeking for privatization revenues,
did not want to lose control over privatized enterprises transferring ownership rights with-
out appropriate transfer of control rights. In fact, SCEs form an essential part of the enter-
prise sector in Poland increasing the state domain up to 15-16% (Bałtowski & Kozar-
zewski 2016).
The state uses three sets of tools for keeping the control over the SCEs. Firstly, the special
rights of the state owner granted by the law – initially it was a golden share. After in 2006
the European Commission banned golden share regulations in the EU regulations as they
constituted restrictions on the free movement of capital, the Polish government started to
look for another measures which would allow it to have more influence on the strategic
decisions of selected companies than would be implied under the property rights that the
state actually owned. In July 2015 the Parliament adopted the law “On Control of Certain
Investments” which grants the government the right to, as the law puts it, “protect a busi-
ness entity,” i.e. to block acquisition of shares of a number of companies which have stra-
tegic importance for the economy by a new controlling investor – even if the company is
fully private. This regulation made possible to block a number of transactions between
private investors and eventually led to nationalization of several power plants, where the
state was the only buyer the government didn’t object.
Secondly, the state uses its dominant shareholder position. In the case of the Polish stock
market, characterized generally by a small extent of free float and a crucial role of institu-
tional shareholders, holding 30-40% of shares is enough to exercise this type of control.
Such a situation occurs in the case of the largest and the most important listed companies
with minority state’s shareholding. Under particular circumstances, when e.g., a high
number of private shareholders declare their presence at the general meeting, the govern-
ment has to seek allies to gain a required number of votes among some institutional inves-
tors, e.g., investment funds. The latter was the case, e.g., at a few general meetings of
PKN Orlen SA, where the state exercises actual control despite holding only 27.5% of
shares.
Thirdly, these are statute provisions favoring the state owner. These provisions most often
take a form of voting caps, i.e., limiting the voting rights of some non-state shareholders.
It is usually stated that none of the shareholders have voting rights to exercise more than
10% (or 20%) of votes, regardless of the number of shares they hold. This limitation does
12
not apply only to the state. Such provisions were included in the statutes of all important
listed companies in Poland with minority state shareholding. In some companies in which
the state is a minority shareholder (e.g., PKN Orlen SA) as well as a majority shareholder
(e.g., PGE SA), other provisions are added extending of the rights of the state shareholder
– such as, the Minister of the Treasury’s right to appoint one member of the Supervisory
Board directly.
Another peculiarity of the present state is that SOEs, including what Bałtowski and
Kozarzewski (2016) call SCEs, are predominantly large and very large firms with signifi-
cant impact on the market. The privatization of the largest and most important Polish
state-owned enterprises was carried out from the last years of the 20th century until as late
as 2012 using the capital market. There were two procedural paths in place. Either the
government would sell a controlling stake to a selected foreign investor, with the rest be-
ing sold through an IPO. Or the shares were sold through an IPO without a strategic inves-
tor, and the government kept its majority or even the minority stake, yet allowing, through
the tools of “reluctant privatization,” to retain the state’s corporate control. At the same
time, some large state-owned enterprises were excluded from privatization.
The 20 largest Polish non-financial companies currently include 8 state-controlled enter-
prises (Table 1). The corporate control of the state covers the largest Polish company
(PKN Orlen – gas and oil), the largest industrial company (KGHM PM – metals and min-
ing), four leading energy corporations, as well as, not included in Table 2, three dominant
financial institutions: banks PKO PB and Pekao SA, and insurance company PZU.
Table 1
State enterprises among the 20 largest non-financial companies (measured by revenues),
as of December 31, 2017
Number Turnover
(Bn. Euro)
Employment
(thousand)
Top 20 20 105.7 349.2
SOEs 8 57.0 173.8
out of which the state possesses:
more than 50% of shares
25-50% of shares
3
5
19.9
37.1
70.8
103.0
Share of SOEs in the Top 20 40.0% 53.9% 49.8%
out of which the state possesses:
more than 50% of shares
25-50% of shares
15.0%
25.0%
18.8%
35.1%
20.3%
29.5%
Source: Coface (2018), own calculations.
13
In the case of the largest Polish listed companies, the dominance of state entities is even
more pronounced. At the end of 2018 the Polish government had corporate control over 12
out of 20 largest Polish public companies listed on Warsaw Stock Exchange (WSE) flag-
ship index, WIG20. Among these 12 listed companies, in 4 the state share is above 50%
and in 8 its share is 25-50%.
Until 2004, state companies’ share of capitalization of WIG20 index was 20-35%, which
is comparable to stock exchanges in some developed countries with an extensive state en-
terprise sector. After 2005, this share significantly increased, to 40-45%, and since 2010 it
had been at a very high level of 60-70% with the share exceeding 70% in 2017 and 2018
(Figure 1). This is one of the highest values of this type of indicators on global stock mar-
kets. At the same time, since 2017 the share of companies where the state is the majority
owner is increasing.
Figure 1
The share of state-controlled companies in the WIG20 capitalization (in %)
Source: Own calculations using the WSE data.
4. SOEs and State Capitalism in Poland
The previous section may suggest that impact through state controlled enterprises is the
most important tool of state capitalism in Poland. Closer look at manifestations of state
capitalism in this country seems to corroborate this statement.
0%
10%
20%
30%
40%
50%
60%
70%
80%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Share in the WIG20 capitalization
Companies with the state share >50% Companies with the state share 25-50%
14
4.1. Politicization of SOEs
The commercialization of SOEs provided ample room for their politicization. Firstly, su-
pervisory boards and collegial management boards of companies were populated, on poli-
ticians’ recommendation, with people who were “one of them,” though devoid of adequate
qualifications ‒ the ruling party’s apparatus officials, senior civil servants and people from
the outside but nominated by politicians. Secondly, the existence of a large group of state-
dependent enterprises provided an opportunity of stable, quite well-paid employment for
individuals nominated by politicians. Thirdly, those state enterprises were widely used by
politicians to fund the party, propaganda and electoral events etc.
Politically-motivated nominations to state enterprise governing bodies, often carried out
contrary to the principles of corporate governance, decreased the enterprises operating ef-
ficiency. This would often cause them to lose value before privatization, opening another
area of pathology.
Polish privatization progressed quite slowly, which was the cause of the relatively large
scope of political capitalism in Poland during the initial period of transition. As privatiza-
tion processes intensified, the scale of this phenomenon has started to diminish. Neverthe-
less, with respect to the existing number of state enterprises, its intensity is still very high
and is growing due to the changing attitude of the PiS government towards the state sec-
tor.
4.2. Political Capitalism à Rebours
Empirical research by Hellman et al. (2003) carried out in early 21st century yielded some
interesting findings suggesting that in post-communist countries state enterprises would,
much more frequently than commonly believed, exert an influence on politicians to dis-
rupt the legislative process and introduce various legal regulations to further their specific
interests. Of course, this would always occur to the disadvantage of other market partici-
pants, including consumers. This way the universal property rights were substituted by
“individualized protection,” with the “inequality of influence” becoming institutionally
established (Glaeser et al., 2003; Sonin, 2003).
In Poland, the phenomenon of political capitalism à rebours was the strongest in mid-
1990s, when social democratic coalition was in power, and then under the coalition of
right-wing parties supported (or even consolidated) by the still strong “Solidarity” trade
union. The then authorities, in the name of social peace, and to maintain the trade union’s
15
political support, agreed to all sorts of concessions and privileges, especially with respect
to the largest enterprises (and their staff). Power industry employees would get guaranteed
employment for over a dozen years, and extraordinary salary benefits. Unprofitable hard
coal mines were kept alive with government subsidies, the state took none of the necessary
restructuring actions with respect to highly “unionized” industries such as railway or sugar
industry, and industry monopolies were strengthening.
Political capitalism à rebours, being a typical phenomenon for a transition period, natural-
ly decreased in Poland as privatization processes intensified, from the late 1990s onwards.
Since 2004, Poland as an EU Member State has been bound by the state aid notification
regulations, as well as by strict antitrust regulations, which definitely make it more diffi-
cult to run an economic policy that gives any kinds of preferences to state enterprises. But
does not make it impossible, what could be seen in many actions of the PiS government
aimed at squeezing out private companies from selected branches of economy such as un-
official preferences for SOEs in procurement tenders (e.g. for the army), creating for SOEs
dominant position on the market etc.
4.3. Cronies and oligarchs
The phenomena of cronyism and especially oligarchy in Poland never reached significant
proportions that would jeopardize the implementation of the reforms. Undoubtedly, crony-
ism was present in Poland since the beginning of transition, but its scale was much lower
than in other CEE countries.
The lack of oligarchs and oligarchy is often considered to be among the greatest successes
of Polish economic and political transition. On the one hand, it stemmed from certain gen-
eral principles of the state’s economic policy early into the transition process, providing
for separating the political sphere from the economy, as adopted as part of the so called
Balcerowicz Plan. On the other hand, another thing that had a positive impact was the
state enterprises privatization model adopted in Poland, based on slow but transparent
ownership transformation, without privileges for domestic capital.
4.4. Economic Populism and Economic Nationalism
The phenomenon of economic populism, quite sporadic in the first quarter century of the
transition, naturally gained importance after the 2008‒2009 crisis and grew when the PiS
coalition took power in the autumn of 2015. The promises of wide support for those on the
losing end of the transition process were actually among the principal causes of the elec-
16
toral success. This feature of state capitalism is quite common in post-communist coun-
tries due to nostalgia for the communist variety of welfare state still prevailing in certain
social groups. As revealed by public opinion polls in Poland and other transition countries,
a major part of the society accepts and even expects paternalistic attitude from the state.
When it comes to economic nationalism, in Poland throughout the transition period until
2015, there had been no significant state activities in this vein. Though usually during the
rule of coalitions which in Poland are called “right-wing” (although they had quite leftist
and populist economic programs) recourse was sometimes made, more in the political
rhetoric than in economic practice, to slogans such as defense of national economic inter-
ests, stopping the privatization seen as selling out family heirlooms, “domestication” of
the banking sector or rebuilding Polish state industry. These slogans radically gained
strength after this camp’s win in parliamentary elections in the autumn of 2015, and they
were followed by specific actions from the new government. A number of spectacular na-
tionalization procedures were completed. The state-controlled large insurance group PZU
SA along with the state investment fund PFR SA bought out from UniCredit bank group a
controlling stake in Poland’s second largest bank, Pekao SA. Another large bank, Alior
SA, was also taken out of private hands. State power companies took over the assets put
up for sale by the French EDF group. The buy-out of the cable car in Zakopane (Polish
winter sports resort) from the Austrian investor, built 80 years ago by the Polish state and
privatized several years back, was another transaction that acquired a symbolic signifi-
cance of “the privatization reversal,” the term coined by Błaszczyk (2017).
Another event with highly populist overtone, though not related to nationalization pro-
cesses, was the suspension, in the autumn of 2018 ‒ pursuant to an ad hoc law ‒ of the an-
nounced electricity price rise. It means a very strong state interference with the operations
of power companies (which, ironically, are mostly state-controlled). It should be added
that these actions were modeled on similar ones carried out earlier by the Hungarian gov-
ernment.
All those state measures were accompanied by pushy propaganda in the government-
controlled media, exploiting the theme of struggle against foreign capital, “Poland’s get-
ting up off its knees” and making Polish economy great again.
17
5. Polish SOEs in the Nexus of Group Interests
5.1. Some Background on Rents and Rent-seeking
Benefits which interest groups obtain from the Polish SOE usually have a form of rents
which in the economic literature the most general form are be defined as generation of
revenues greater than would be the result of undistorted market competition (Tollison
1992). Its specific feature, described in the theory of rent-seeking (Tullock 1967, Krueger
1974), is obtaining profits without an increased supply of goods due to the beneficiary’s
privileged position. In other words, it is about generating additional revenue by redistrib-
uting resources – unlike other sources of revenue which are based on value creation.
The participants of rent-seeking activity are the entities which distribute rents and the enti-
ties which receive them it. In Poland, both of these groups include, first of all, widely un-
derstood authorities (politicians, decision-makers, officials, etc.) and the strongest interest
groups capable of exerting effective pressure on decision-makers. Mokrzycki (2001)
called this system a “negotiation democracy,” derived from relations between the state and
the society during the communist period. Jasiecki (2013) points out that the games con-
ducted within this system contradict the rationality of contemporary capitalism, which is
manifested in the capture of the state by political parties and interest groups with all the
resulting dysfunctions. Observation of the reality of Polish transition also shows that into
this “quest for rents” were also drawn other social groups; they didn’t constitute a political
force with articulated interests, but attracting them could have brought political profits to
the rulers. Moreover, in this game it was not always possible to make a precise distinction
between those who generate rents and those who benefit from them.
The observation of the rent-seeking in Poland and other post-communist countries justifies
the broadening of the concept of rents over the acquisition of profits of a direct or indirect
economic nature. In fact, any kind of privileged position can be considered as a source of
a sort of a rent, including the acquisition of resources for purposes other than their moneti-
zation. It may be redistributing political influence, limiting political competition compar-
ing to the state resulting from undistorted democratic mechanisms. A rent may be directed
at satisfying other, non-existential, high-level needs. According to many observers, start-
ing with Machiavelli (1961), these are striving for power and control over other people.
Apart from power, there may be also success, recognition and a sense of affiliation
(McClelland, Burnham 2003). In order to avoid terminological misunderstandings, the
18
“classical”" type of rents (giving material benefits) will be referred to as an economic rent,
while the latter (satisfying non-material needs) will be referred to as a political rent.
5.2. Emergence and Evolution of the Rent-seeking Nexus
Unlike some other post-communist countries, especially many of CIS members, privatiza-
tion process in Poland and private sector as a whole proved to be resistant to rent-seeking
behavior – mainly due to mostly consensual, transparent and equivalent character of the
privatization deals, and transparent character of emerging financial markets which from
the very beginning were subject of strict rules and control with efficient enforcement
mechanisms. Whereas the state-controlled enterprise sector, in the absence of efficient
state corporate governance mechanisms, created fertile ground for vested interests to flour-
ish. For them, both consolidation (together with de-politicization) of state control over
SOEs and their privatization posed a threat as they reduced the sources of rent. It may be
argued that this reduction was one of the main causes for the “reluctant privatization” and
crawling nationalization.
In the course of transition, an extensive nexus of rent-seeking activities in the state-
controlled sector of the Polish economy has formed. The main distributor of rents is the
political class which actually has power, being simultaneously the main rent-seeker,
alongside with persons who have close links with it – quite similar to the Magyar’s (2016)
“adopted family” in Hungary. Within the political class and outside it (interest groups
such as SOE employees and other groups which are attractive as voters) rents bring profits
for the both sides of the transaction: those who distributed rents of economic kind got po-
litical profits (which may be called “political rents”) in return. Together with quite effi-
cient democratic institutions which ensured political competition and some degree of pub-
lic control over the ruling class, it created a peculiar and relatively sustainable system in
which empowered private interest groups were subject of periodical rotation (as a result of
election or political crises), while the sources of rents remained the same. It created the
state of equilibrium which prevented authoritarian temptations to seize more power in or-
der to have more rents; on the other hand, it jeopardized the possibilities of destroying the
rent-seeking nexus formed around the SOEs sector.
In the second half of the 2010s, after winning the elections, the PiS politicians, in order to
monopolize rents, started undermining this equilibrium through attempts to destroy the
rule of law and political competition. At the same time, the new statism-based develop-
19
ment paradigm was declared. It led to a paradoxical situation, when, on the one hand, the
political class tried to expand rent-seeking and at the same time the new economic policy
with increased role of the state in the enterprise sector led to increasing use of SOEs for
achieving private gains. On the other hand, a development strategy based on the state as
the core investor requires optimization of SOEs functioning: increasing their transparency,
effectiveness and the ability of meeting the development goals rather than serve private
interests. In fact, attempts of the government to restrict rent-seeking in SOE sector can be
seen (mainly through changes on the companies’ boards and anti-corruption investiga-
tions), but, unsurprisingly, they remain inefficient.
5.3. Main Rent-seekers
The main interest groups which extract rents from SOEs and – broadly – from the state
policy towards the enterprise sector are presented in Table 2. They can be divided into two
categories.
Table 2
Interest groups and rents received by them in the SOE sector
Interest group Type of
rent Redistributed resource Main objectives
The ruling political class ER, PR control over enterprises,
including the expansion of
the state domain
– creating sources of rents for
themselves and their socio-
political base
– creating resources for the
implementation of social and
economic policy
Persons connected with the
governing coalition
ER, PR positions in companies con-
trolled by the state
– increasing control over the
activity of companies
– consolidation of power
– personal enrichment
ER orders, contracts – individual enrichment
Trade unions ER, PR opposition to privatization,
preservation of state support
– preservation of income
Employees of SOEs with
dominant
ER monopoly rent – preservation of their SOEs
– attracting of voters
Employees of „strategically
important” SOEs
ER employment, wages, privi-
leges (e.g. pension), invest-
ments (including rescue)
– preservation of their SOEs
– solving social problems
– attracting voters
Employees of enterprises
which have been nationalized
through rescue investments
ER employment, wages – solving social problems
– attracting voters
Important groups of voters
not related to the state: foot-
ball fans, patriotic groups, etc.
ER sponsoring, hidden subsidies – solving social problems
– attracting voters
ER – economic rent, PR – political rent.
Source: own compilation.
20
5.3.1. Powers that Be
The first one consists of groups connected with state authorities: representatives of politi-
cal elites and individuals associated with them, for whom control over state property is
primarily the “loot” of winning parties and coalitions, as well as members of government
structures responsible for decisions within the ownership functions of the state. The main
objective of rent-seeking was most likely the personal enrichment of the members of these
groups and apparently also the realization of certain non-financial, political ambitions.
These rents were primarily of a direct nature: the initiators of their extraction were at the
same time their main beneficiaries.
One of the main redistributed resources was seats on the SOEs boards. As has been men-
tioned in the previous parts of the paper, each subsequent winning coalition tried to fill
these positions with its members and allies. The qualifications of these people to perform
their duties in the enterprises were of secondary importance. Concerns about the quality of
management of these companies, as well as the general way the state conducted ownership
policy exposed SOEs to the loss of confidence on the part of the financial markets, which
manifested itself in falling prices of their shares. However, from the point of view of
group interests, these losses could be perceived as compensated for by the amount of the
rents received. At the same time, the rents were extracted both by those who received lu-
crative jobs in companies controlled by the State Treasury and by the body which held in
its hands their distribution. Until the end of 2016, the main such authority was the Minis-
try of the Treasury which had concentrated in its hands enormous political power, being
responsible for both privatization and state property management. The political weight of
this body apparently was one of the main reasons of its liquidation after the PiS coalition
came to power in 2015 and started to concentrate economic power in the hand of the
Prime Minister and branch ministries.
Despite this, judging by the intensified personnel carousel after 2015, the political class
and its allies continued to treat positions in SOEs as a source of rents, but the conditions
for extracting it were subject to three significant changes. The first is the final elimination
of privatization and its rent depleting effect. The second is intensified competition for state
resources after the de-concentration of ownership control among several governmental
agencies, which manifests itself in frequent changes on the boards in the largest compa-
nies under the conditions of a stable ruling coalition. The third is the above-mentioned
change in the attitude of the ruling elites towards the role of the state sector in the econo-
21
my, which was to become the main engine of development. It objectively required the re-
duction of its rent-generating functions. However, due to new politically motivated bur-
dens imposed on SOEs appeared and the meritocratization of personnel policy did not
succeed at all – which can be explained by its appropriation by the interest groups de-
scribed above.
5.3.2. Voters to Get
The second most important category of rent seekers which get benefits from the existence
of the SOE sector, are social groups, whose support as voters is important for the political
class. The specificity of the rent functioning here is their double character. The groups in
question receive direct economic rents (income, allowances, etc.). But the political class
was also becoming a beneficiary of a kind of an indirect “return rent” of a political nature,
creating for itself a socio-political base that strengthened its power. The initiators of such
system of rent-seeking could be both representatives of the political class and direct bene-
ficiaries.
The main beneficiaries of such rents are both associated and unrelated to the SOE sector.
They receive rents both as a result of effective political pressure on the authorities (using a
wide range of tools from lobbying to open protests) and on the initiative of “return rent”
seekers. The latter, in order to gain an advantage over political competition, often took the
initiative of various kinds of reliefs and privileges for selected social groups.
As regards groups linked to the state enterprise sector, these are mainly employees of large
enterprises, especially in sectors with weak competition and dominance of state owner-
ship, as well as trade unions with function in these sectors and enterprises. One of the
most privileged groups are miners, who benefit from numerous rents in the form of too
high a level of employment and wages, additional privileges in the form of e.g. early re-
tirement, as well as stability resulting not from the high competitiveness of the sector but
from the protection from successive governments. Rents transferred to this social group
have recently started to not only to incur high costs for the economy, but also threaten the
country’s development in the long term, e.g. by limiting the implementation of renewable
energy sources in order to ensure the rationale for the existence of coal-fired power gener-
ation. This category of rent-seekers also includes employees of state-controlled infrastruc-
ture and shipbuilding companies. These groups can be classified as active rent-seekers, as
they usually forced their privileges on subsequent governments in a more or less drastic
22
manner. The group of rent-seekers of this type expanded through rescue investments in
some troubled private companies, leading to the restoration of state control over them.
Groups not connected with the state enterprise sector are a relatively new category of rent-
seekers, which started to grow during the second term of the centrist PO-PSL coalition
(2011-2015) and the actually ruling PiS coalition. It is internally diversified, but the com-
mon feature is its financial support by SOEs. In the case of these groups, the rent-seeking
initiative comes rather from the political elites; of course, with the acceptance of this
group of beneficiaries. Rents usually take the form of various types of sports sponsorship
and cultural patronage: SOEs finance sports facilities and teams much more generously
than private companies. The patronage of state-owned companies included many of the
most important cultural events. After 2015, a clear policy of state patronage have formed,
which supports the initiatives of the ruling political coalition. Also support has been intro-
duced for the “politically friendly” mass media: SOEs started to be forced to place adver-
tisements in these media and to subscribe to “allied” periodicals.
6. Some Concluding Remarks and Discussion
At the present stage of the research, its bottom line is that in Poland the “return of state-
owned enterprises” had its quite unique path and causes which originated from unfinished
post-communist transition and peculiarities of private interest groups formation.
Having stated that, the authors believe that the studies on state-owned enterprises in Po-
land (and in transition countries in general) still wait for a sound theoretical base. The
shortcomings originate, firstly, from underdeveloped theoretical concept, among which
the state capitalism approach seems to be one of the most promising (probably also
strengthened by interest groups analysis), but it needs fine-tuning in order to be applicable
to transition economies. Secondly, it’s a relative novelty of the outright statist trends in the
economic policies of several transition countries including former reform leaders such as
Poland. In this paper, the authors attempted to at least partially close these gaps.
Conceptually, an attempt was made to make a stricter definition of state capitalism and
increase its applicability to transition economies. At this stage, the authors think that no
strict definition of state capitalism is possible because it is too heterogeneous, it may be a
separate economic system and/or a set of economic policy tools which are in their turn al-
so vary in time and from country to country – so a model created for Poland only cannot
be universal. To put this chaos somewhat in order, the paper proposes the concept of six
23
basic features of state capitalism which may manifest themselves in a given country with
different intensity and character. Doing this, the authors also tried to raise the awareness
of the importance of state-controlled enterprises in studies on state capitalism.
The second gap, of a factual kind, is recently not so deep, because more and more re-
searchers gather information on manifestations of the statism in Poland and look for ex-
planations. The “return of state-owned enterprises” is an on-going process in Poland, thus
the task of gathering information remains actual, although knowledge gaps can be found
in the past as well, such as the increasing crawling re-centralization of the Polish econo-
my, which started already in the 1990s, which have been largely neglected in the litera-
ture.
Nevertheless, the main challenges lay elsewhere. The first one is putting all Polish devel-
opments in a proper theoretical perspective – and in the paper attempt to do it using the
perspective of state capitalism and rent-seeking was made. The second one is to identify
the roots of growing statism which leads to revival of SOEs, their causes and driving forc-
es – also seeking an answer to the question whether the developments observed in Poland
are country-unique, or are a part of wider processes, more universal logic of policy (or
even system) change. The paper just lightly tackled these issues. The third and fourth chal-
lenges go beyond positivist attitudes of a researcher. They mean the necessity to evaluate
the SOE sector functioning from the point of view of achieving economic and social de-
velopment goals. Here the paper’s contribution is more than modest – but the authors’
other studies show that this “return” is rather a step back. Finally, the question totally
omitted in the paper, being at the same time the most difficult to answer: what may be an
optimal governmental policy towards the state-controlled sector of the economy, at least at
short- and medium-time perspective?
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