Poland vs Ukraine: Post-Communist State Building Compared

Introduction

Poland and Ukraine are two countries that emerged from the Communist bloc and embarked on a process known as transition — moving from the general characteristics of a Communist society (dictatorship, single-party system, state economy) to those of a capitalist one (market economy, multi-party system, active civil society). In both cases, governments also had to dedicate their efforts to a process of state building that included, in many cases, creating appropriate institutions, ensuring their functionality, and establishing their interconnectivity.

However, the ways in which the two countries developed were significantly different. Despite the fact that both countries experienced a decrease in GDP after 1989 (or 1991, the dissolution of the Soviet Union, in the case of Ukraine), Poland was much quicker to rebound and to firmly set its course toward building a truly democratic society. This included a vibrant civil society, increased transparency in the decision-making process, and an economic shock therapy that, despite initial hardships, eventually proved the most effective path to a functional market economy. In the case of Ukraine, the absence of transparency — especially during the 1990s — meant that various power-sharing agreements allowed obscure interest groups to play an outsized role in the country's leadership.

This paper presents a parallel between the state and society building processes after the fall of Communism in Poland and Ukraine, examined on three levels: the construction of a political society, an economic society, and a civil society. It also examines why Poland and Ukraine developed differently, arguing that the objectives Poland set for itself — including NATO and EU accession — required it to abide by the full implementation of democratic and economic reforms.

One of the central struggles in both countries was building appropriate political institutions in the post-Communist period. In Ukraine, the political transformation was neither as concrete nor as final as it was in Poland, and it sometimes amounted to little more than a contest among newly created institutions — the Presidency, the Prime Minister's office, and Parliament — fighting over power-sharing arrangements, with no clear institutional rules defining the relationships between them.¹

The Construction of the Political Society

Additionally, the primary body of institutional rules — the Constitution — took a very long time to be adopted in Ukraine, despite the fact that in other formerly Communist countries this process was completed relatively quickly after the fall of the Communist regime. This was not entirely the case in Poland either, where a new constitution was adopted in 1997; however, the old Polish constitution had undergone numerous amendments that transformed it to better fit the institutional needs of the new post-Communist society. At the same time, some existing elements of the Communist-era constitution could still be used as a regulator of institutional activity and a defining instrument of the role of each branch of government.

In Ukraine, there was no such foundational document to build upon. The state initially proposed a draft advocating for a mixed presidential-parliamentary system, which was eventually rejected. For years, there were no agreed-upon rules governing how different governmental institutions would work with one another. Furthermore, some institutions were barely created anew; rather, they were transformed from formerly Communist institutions without substantive change. The Ministry of Economy, for example, was formed by converting the former central planning institution of the Communist period.²

Another important difference in the political and institutional construction of Ukraine, as compared to Poland, was that much of the former Communist nomenclature remained in power in Ukraine, including in key areas such as the Ministry of Economy and the Ministry of Finance. In Poland, this nomenclature was pushed aside relatively quickly and replaced with individuals who were inspired by and committed to the ideals of change.

In considering the political construction of Ukraine, additional contextual factors must be noted. Poland was already an independent and sovereign state in 1989 at the fall of the Communist regime, while Ukraine was a republic within the Soviet Union. One of the central challenges for the Ukrainian government was the consolidation of its territorial integrity and sovereignty — and the avoidance of civil wars such as those that erupted in Georgia or the Republic of Moldova. The differences between Western and Eastern Ukraine were significant (and remain so), but the fact that the first two Ukrainian presidents had strong ties to Eastern Ukraine, and that the industrial East held the economic upper hand, meant that secessionist threats were suppressed relatively quickly after 1991.

The immediate economic trajectory after 1989 was broadly similar in the two countries, characterized by a sharp contraction following the collapse of the Communist system. In Ukraine, this began to be felt as early as 1992, and the GDP decline accelerated throughout the 1992–1994 period, with decreases of 9.9%, 14.2%, and 23% respectively.³

Economic Society

Poland represents a markedly different case. According to various sources, Poland experienced both the mildest and the shortest recession of all countries in Central and Eastern Europe or the former Soviet Union,⁴ reflected in a production output drop of only 6% over two years. Poland was also the country in Central and Eastern Europe and the former Soviet Union where economic growth resumed fastest — after just two years from the fall of Communism. By the end of the 1990s, Poland had recorded a 40% increase in GDP compared to 1990.

Some of the reasons for economic decline in the first post-Communist years were similar in both Poland and Ukraine. The most notable was that the formerly Communist economies of both countries were not adapted to the new challenges of the market economy that each government was attempting to implement. Transforming these economies into systems capable of competing in capitalist markets would take a few years in the case of Poland and remains incomplete in the case of Ukraine. Another common factor was that both countries had relied on the former Soviet space — as well as the formerly Communist Central and Eastern European markets — as the primary destinations for their goods, and realigning their economies to meet Western demand would, again, take time.

However, the differences in the underlying causes of economic decline are numerous and include both internal dynamics and divergent external objectives. From the external perspective, Poland had set NATO and EU accession as its primary strategic objectives as early as 1990, and its Western trajectory consistently shaped its approach to economic transformation. In 1991, Poland was already a member of the Visegrád Group, just one example of its commitment to Euro-Atlantic integration. For Ukraine, this perspective did not emerge until the Orange Revolution in 2004. Moreover, as the first Ukrainian president's ambivalence demonstrated, Ukrainian decision-makers were not certain which type of economic policy should be adopted or whether the liberal shock policies implemented in Poland would be functional in Ukraine.

Furthermore, some characteristics of market economy and small-scale market reforms had already been introduced in Poland by the late 1980s, during the Communist period, as reflected in key indicators such as the World Bank's Index of Liberalization. This meant that subsequent reforms implemented during the 1990s had a sustainable platform on which to build, giving Poland a significant head start over Ukraine. The liberalization index for Poland stood at nearly 0.6 in 1990, compared to 0.2 for Ukraine. By 1998, the index had gradually risen to over 0.8 in Poland, and only to 0.6 in Ukraine.⁵

One must also consider differences in the internal environment that affected the economy. Analysts have shown that the political situation in Ukraine — which permitted the rise of various interest groups and "opaque groups" — was a direct contributor to economic decline, both through endemic corruption and through the diversion of governmental and government-guaranteed credits toward personal interests and private businesses. The opaque political scene produced an equally non-transparent economic environment, which contributed to its decline.

The situation in Poland was quite different. As in most formerly Communist countries, one of the key challenges of transition was finding the right balance between giving enterprises sufficient freedom to develop in the new market economy and applying appropriate governmental discipline to control key macroeconomic indicators, such as the budgetary deficit. In contrast to Ukraine, Poland maintained "the hard budget constraint on state enterprises, together with sufficient standards of corporate governance" as the main governmental instruments to prevent "large-scale asset stripping before privatization."⁶ This was one of the key reasons economic recovery began so much earlier in Poland than in Ukraine. The privatization process did not take on the chaotic character it had in Ukraine, where state assets were often simply divided among interest groups and individuals close to power. Poland's rational privatization process meant that many assets, still functional, could be used to resume economic growth — and that the transparency of the process attracted direct foreign investment beginning in the early 1990s.

There is yet another explanation for Poland's stronger economic trajectory during the transition period. Polish governments of the 1990s actively promoted an environment in which small and medium-sized enterprises (SMEs) could develop — the sector that economic theory consistently identifies as the backbone of a sustainable market economy. By encouraging SMEs through appropriate legislative and executive support, Poland also ensured that enterprises inherited from the Communist period faced meaningful competition in the marketplace. None of this occurred in Ukraine, or when it did, it was an isolated act rather than a government-supported policy framework.

One final element worth noting with regard to the economic dimension of state building is the role of fiscal and pension reform in Poland. The implementation of a rational tiered pension system⁷ cushioned one of the most vulnerable categories of citizens — the elderly — against the effects of the economic transition. Polish governments implemented these fiscal and pension reforms during the early 1990s, while in Ukraine, comprehensive pension reform only began around 2005 and has since stalled.