<!-- Start of picture text --> Policy R"esem<br>Transiton and Maco-Adjusmennt<br>WPS 1101<br><!-- End of picture text --> This paper is a product of the Poland Resident Mission, Country Department II, Europe and Central Asia Region. The study was funded by the Bank's Research Support Budget under research project "State Enteiprise Behavior in Poland During the Economic Transformation Program" (RPO 677-58). Copies of this paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Marylou Kam Cheong, room K6-i 15, extension 39618 (February 1993, 43 pages).

Basing their report on repeat visits in late 1992 to 75 large state-owned manufacturing eiterprises (which had been earlier surveyed in mid-1991), Pinto, Belka, and Krajewski present optimistic new evidence about the transformation of state-owned enterprises in Poland.

'Ibis evidence shows state-owned entenrmises in a much more favorable light than the stereotype of :,oyopic, decapitalizing companies that dcminates discussion of Polarn's state manufacturing sector. Success stories are emerging, and the state sector is far from a write-off.

Moreover, favorable evidence is drawn from all manufacturing sectors, attesting to the potential for a diversified manufacturing base. The state-owned enterprises' operations are largely autonomous, so the positive adjustments indicate that decentralized approaches to trnsnformation could woik - if bolstered by appropriate managerial incendves. But several problems remain, and many issues have yet to be addressed.

Pinto, Belka, and Krajewski examine various adjustment indicators (labor shedding, material and energy costs, bank borrowings, and export performance) and correlate these with firms classified by 1992 financial performance. (By 1992, presumably, the transitional measurement distortions of 1990 and 1991 had disappeared.) They show that significant differences exist between "successful" and "unsuccessful" firms. Managers in successful firms have tended to stress a change in product mix, have generally become more efficient in the use of materials and energy, have maintained labor productivity, and have shown restraint in setting wages and in borrowing from banks.

The authors discuss key transformation issues: the disappearance of such safety valves as easy bank loans and interfirm credit, hardening of the microcconomic budget constraint, excesswage tax reform, and, most importan, managerial attitudes and incentives.

To complete the picture, they correlate the results of manager interviews with the quantitative performance of firms. Essentially, firms have leamed a good deal about operating in a market economy in the past three years, and managers have matured. The industrial revival showing up in economywide statistics can be regarded as a sustainable trend bon of genuine microeconomic adjustment.

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Poced by dle Policy Research Dissaniadon Center