A Model of Institutional Change: The Economic Transition of Poland

Transition from a centrally planned economy to a market economy is a complex process which involves, in the first place, the economic institutions. Therefore the core of the transformation is institutional change. During transition in the countries of Central and East Europe the institutions were largely neglected by policy makers. In this paper I argue that this lack of attention caused a certain level of institutional instability and inconsistency in agents’ behaviour, which in part account for the weak economic performance of these countries. The behaviour of agents is affected not only by formal institutions such as new laws and organisations, but also by social norms, old values and habits. The shape of the new institutions depends on the interaction between formal and informal institutions. Lack of consistency between these categories seems to affect economic performance negatively. In this context, the role of the State is crucial. In this, paper I focus primarily on Poland as a case study. In Poland, after the initial programme of macro-stabilisation, called “shock therapy” (1989-93), a second programme more oriented towards institutional issues was implemented (1994-97). During this second period better economic governance and institutional policies seem to have stimulated better economic performance.