Created: 9/4/1980

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Settlement Implications*

miniuna j

fdr release date; apr? iii

The agreement ibis week between the lovcrnroeni and sinkers along ibc Baltic and in Silesiais ending Poland's immediate labor crisis. Tbe agreements, however, will ushereriod of political turmoil that could last several yean. During (his poststnkeeakened party leadership cart be expected to engageontest of will and guileefiant and politicallyworking class. Political dissidents,by the workers" success, will icck to give the new free trade unions political diiection.

The Soviets, whether or not consulted about the final accord, will be watching events wilh great suspicion, and Polish-Soviet relations will be icnse. The accord allowing free and independent trade unions will differentiate Poland even more from iu Warsaw Pad allies, giving it an independent workers' lobby to go along with an independent Church and independent farmers. For ihe timetherefore. Poland will moveore liberal and open society.

The Trade Uaioa Iswe

The regime conceded the issue of free trade unions because it was running out of time and options. It tried, at the same time, to remove the political King from this concession by obligaiing the new unions to recognize Communism and the party as the sources of authority. These provisions wereto sell the agreement to the party leadership and perhaps to Moscow. Whai form Ihe new trade unions will take and what powers they will hare remain to be settled. The regime has obligated itself toew law on trade unions and hasthat the new unions will be able toin its preparation. No time limit has been set for completing this draft j |

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Although ii would not blatantly renege on iuto permit free trade unions, thewill seek to keep their powers and nghuinimum. Presumably, ihe regime docs not want to go beyond allowing individual unions that arc authorized to negotiate only or. peripheral economicregulations, working conditions, and piece rates, forlimited Largely to an advisory Of consultative role. The workerswill strive for unions with more clout. But-previously united onlyhared goal of wresting some power from themay now be expected lo put forward differing views on how the unions are to be organized and what functions they aieerform, |

The key to whether the new unions will emergeenuine and effective force in representing worker interests lies io whether they gain the right to negotiate wage agreements, with the right to strike to support their demands. Winning the right to bargain wage agreements would make sharpon centra) planning as now practiced inbecause tbe government wouldarge measure of control over incomes and consumer purchasing power. Moreover, the pollictory that formation of independent unions represents is not likely to be followed by the increases in real income that the workers expect. Diaappointmeni

over unrealized improvements in the standard of

Irving could well trigger new civil disturbances.Q

Economic Impact

The strike settlements do not improve the outlook for Poland's economy; the dilemma of how to wrvice the huge foreign debt without lowering the standard of living remains. Indeed, satisfyingobjectives simultaneously is not possible without large-scale aid from tbe Wot and from the USSR.rj


Terms. The key ckmcnl of the Gdansk and Szczecinevidently are servingodel for worker-governmentthroughout(he authorization of

lhe formation of independent trade unions and

the right io strike. These pacts also grant many other worker demands, though in some instances either incompletely orelay.Q

The major corsccssioni include:

gradual increase in wages according to job category and industrial sector, with larger hikes for lower paid workers The first phase ofwill be completed by the end of this month, and another agreement will be reached by tbe end of October to raise wages in1 for the lowest paid and families with many children.

Price controls to stabilise the cost of living and elimination of hidden inflation. The government also promised tolan for compensating workers for increases In the coil of living.

A government plan to be worked out by the end of the year to improve foodofincreasing the profitability ofproduction, reducing meat exports, and increasing imports. Meat rationing will be

Annual adjustment of pensiom and an increase in the lowest pensions

The agreement reached between (he coal miners and government differs little from the Gdansk and Szczecin pacts. Miners, however, did succeed in winning three specific demands of particularto them ive-day work week, improved safety measures in the mines,eduction in the retirement age from SS to SO. Q

Consumption and External Balance. Theto the workers arc more likely to intensify inflationary pressures than to raise Polish living standards in the long run. In the immediateor ihe settlements, consumption may rise, but only if the regime allocates additional resourceshe consumer sectorhift can only lake place by reducing exports and increasing imports, thus worsening the hard currency deficit. Eventhe strikes began, we estimated thai Poland's current account deficit with0 would be about the same as the S3 billion incurred lasl year and could be higherosses from production and transportation disruption* due to the strikes and the need for the government lo import more and/or export lessgoods to conciliate the workers could add at least several hundred million dollars to0 hard currency deficit. The hard currency cost of the wage package alone could reach SI billion on an annual basis. ^

Poland will find it difficult, if not impossible, to borrow ihe funds needed to cover these coals. Even before the strikes. Poland's borrowing ability was very limited; the strikes have increased Western banker reluctance to lend to Warsaw.!

"home US banks arcwary ol extending even trade

' The USSR:

may be willing lo provide enough hard currency assistance to cover Poland's additional needs for the next few months, but probably would be unwilling to help support an improved Polish standard of livingontinuing basis.P

If Poland attempts lo carry through on its economic promises in the absence of more Soviet or Western aid. Warsaw would not be able to service its foreign debt and general rescheduling wouldirtual certainty. Even before Ihc disturbances of thiswe were projecting rising debt servicing costs, reachingillion ibis year. Debt rescheduling, however, would not eliminate Poland's need to set its boose in order through some sort of asstcrity programj j

Setback foe Economic Reform. The events of the last two months and the settlements of the last few days have not only foreclosed implementation


of the austerity measures needed to brine spending more in line with hard currency resources, but have all but eliminated the possibility of introducing basic systemic changes. The strikes were triggered two months agomall, timid, and long overdue step in the direction of economicboosting of some meat prices. Thus, one casualty. of the turmoil this summer is the regime'sor ability to raise consumer prices, even though freedom to do so is indispensable not only to restraining consumer demand but to promoting more efficient resources allocation. The strikecommit the regime to price stability through price controls. Hidden price increases will continue to be widespread, however, as long as wage increases continue to outstrip increase* inof consumer goods] |

The leadership shakeup in late August supposedly elevated to power in economic affairs officialsto far-reaching reform. But these peopleadvocate managerialsomerejecting the introduction of important elements of market-type economies]

This essentially admin-isirativc approach to economic reform has nol inthe past significantly boosted efficiency in Poland or elsewhere.!

The new leadership is not totally powertess toeconomic performance in the absence ofeconomic reform. It could, for example, by central directive, reallocate investment tosectors such as agriculture and perhapsmore private activity in services. But the decline in overall invesiment dictated by the need tothe balance of payments and to maintain growth in consumption limits the benefits to be lined from more rational allocation of invesiment.

The Leadership

The parly leadership has been weakened andby tbe crisis, and the lengthy process ofof Ihe agreement will generate even more pressure and conflicts. It is doubtful that Gierck can ever play the leading role he once did, and he probably has already come under strong pressure to step down. The Soviets, however, might want Gierek to remain in placeign thai the party leadership has not been undermined by the concessions. Nevertheless, political leadership will probably fall increasingly to the younger generation including Olszewski and Stanislawarly secretary whoajor role in the crisis.


Polish dissidents will probably increase theirand gain new adherents. They have long argued that society should make demands of its rulers. The dissidents have advised the workers over tbe past two months and will try to help the fledgling unions, but the regime willetermined effort to prevent the dissidents from giving political direction to union work-j^

The Church

The status of the Church will probably not be much affected. The regime undoubtedly needed andits calming influence. But the Church did not play the key role in resolving the crisis, and the regime probably feels under no greatto grant the Church many of Itsdemands. Because Polish Catholicism runs deep, the Church probably did not lose any standing with the population even though many Poles initially saw its statements as siding too closely with the government's position.!-


The Soviets

Moscow's belated acknowledgement ol* ihe seillc-ment. its refusal to permil details of che accord io reach domestic Soviet audiences, its attacks since the seulcmenls on "aniisoctalist elemenu" in(including the strike leader, Lechnd iu indirect criticism ofGicrek's "weakindicate deep concern about tbe accords, their implication for Polish politics, and (heirimpact on the Soviel domestic scene. The Soviets, nonetheless, appearave given grudging acceptance to ihe accords and have offered aof endorsementhe regime's tactics inihe crisis. They have apparently decided ihni however unpalatable the concessions ontrade unions and relaxation of censor-sh^i. (hey wereo defuse Ihe immediaie crisis.

4 Sr^rtrxmer

Original document.

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