Structural Changes in Industry in the Polish Eastern Border Regions between 1985 and 1997

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MISCELLANEA
GEOGRAPHICA
WARSZAWA 2000 Vol. 9
Stanislaw Osiriski
STRUCTURAL CHANGES IN INDUSTRY IN THE POLISH
EASTERN BORDER REGIONS BETWEEN 1985 AND 1997
The integration processes taking place in Western Europe, as well as
the political and economic transformations in Central and Eastern Europe
caused a rise in interest in the issues of development in border regions. The
Polish border regions are usually characterised by (among other things) a
smaller population density and a lower number of urban areas than in
comparison to central regions as well as weaker economic development and
especially the level of industrialisation. The area along the eastern frontier
of the country occupy a different position to the other border region and
they are often derogatorily termed as the "Eastern Wall". And yet it is quite
possible to come across even harsher descriptions of the region e.g. "the
eastern zone of retarded development of civilization" (Mokrzyc, 1998).
Economic and political changes in Poland, its aspirations for full inte-
gration with the European Union as well as the liberalisation of social re-
lations and administrative rules on border crossing, has caused an increase
in the mobility of the people, and increase in mass international journeys
as well as new and better chances for the development of border regions.
According to M. Rosciszewski (1999, p. 59) "The border region of Poland
that was once known as the "Eastern Wall" and was undergoing depopula-
tion and economic stagnation, is now slowly becoming a 'gate' for Poland
and Europe to regions in the East, as well as a 'gate' for those eastern
regions in their contact with the West". This is why M. Rosciszewski pro-
posed to call the eastern part of Poland as "The Eastern Zone of Economic
Activity" (EZEA) (Rosciszewski, 1997, 1999).
In the socialist economy, industry belonged to one of the privileged sec-
tors. Due to the transformations that were occurring in Poland, it became
necessary to increase the competitiveness of Polish industry through struc-
tural changes like ownership, size and sector structure.
The analysis of structural changes in industry was carried out with the
help of statistical data1 on the number of employees working in industry.
1 General statistical data for industry is obtained from the Statistical Annals of Industry
(1986-1999), whilst the structural information on employment comes from 1985 industrial
listings and provincial materials from the Central Statistical Office.

186 STANISLAW OSINSKI
Research was limited to seven of the former voivodships2, situated on the
eastern border of Poland. Going from North to South, these were: the
Suwalki, Bialystok, Biala Podlaska, Chelm, Zamosc, Przemysl, and Krosno
voivodships. The studied region had an area of 46,878 km2 (15% of the total
area of Poland) and was characterised by a smaller population density
(3164.2 thousand inhabitants in 1997, 67.1 people per square kilometre,
8.2% of the total population) and a lower level of urbanisation (1455.6 thou-
sand people in 78 cities; level of urbanisation — 46%; 6.1% of total urban
population) than the rest of Poland. Bialystok was (and still is) the largest
city of the region (282.5 thousand inhabitants in 1997) and at the same
time its main industrial district (Dziakowska, Osinski, 1999).
From 1985 to 1997 the number of employees working in industry (as in
the rest of the country) decreased — from 242.8 thousand to 188.2 thousand
people (23.3%). The studied region belongs to one of the least industrialised
areas in Poland. In 1997 the area concentrated 5.0% of workers employed
in industry, 4.3% of the value of
fixed
goods, 4.2% of investment expenditure
and it provided 3.8% of the total sold industrial production. In 1997 46.9%
of the country's bus production, 25.8% of Poland's natural gas production,
16.4% of woollen textiles and wool substitutes made in Poland, 15.2% of
crude oil production, 14.9% of manufactured cigarettes, 13.6% of Polish but-
ter, 13.4% plywood, 13.3% of processed meat and 12.7% of cement made in
Poland came from this area.
OWNERSHIP STRUCTURE OF INDUSTRIAL ENTERPRISES
One of the consequences of the transformation from a centrally controlled
economy to a market economy, is the process of privatisation and the con-
sequent rise of the private sector. After a couple of decades in a socialist
economy, the Polish private sector was relatively insignificant and was re-
duced to mainly small enterprises employing — as a rule — not more than
five workers. Until 1980 these enterprises were discriminated against in
various ways and, due to doctrinal factors, their development was inten-
tionally thwarted. They were seen as potential sources from which a capi-
talist economy could be reborn (Misztal, 1993).
The economic crisis that began to come to light in the second half of the
seventies and the growing lack of consumption goods in the internal market
led to the softening of some of the administrative laws and rules that pre-
vented the development of private industry. The economic and social crisis
in 1980-1981 forced the authorities to, among other things, allow for the
2 Since the 1st of January 1999 a new administrative division has taken place in Poland.
The eastern border regions are now part of considerably larger administrative units than be-
fore.

STRUCTURAL CHANGES IN INDUSTRY 187
creation of small, private enterprises. Thus, limited changes in the ownership
structure of Polish industry occurred as early as the eighties. These changes
involved the lifting of legal and administrative barriers, what in effect meant
the simplification of bureaucratic formalities that were required to begin any
legal economic activity. This caused a limited development of private enter-
prises (so-called privatisation from the bottom up), mainly small private work-
shops, which in the eighties became the main direction for transformation in
the ownership structure of Polish industry (Misztal, 1993).
In 1985 the ownership structure of industrial enterprises in the eastern
border provinces of Poland was very similar to the ownership structure in
the rest of the country. The dominating part of the industrial labour force
was employed in state owned industry (79.0%), 20.3% in cooperative enter-
prises and 0.7% in enterprises of unidentified ownership.
The second half of the eighties brought with it the development of private
small scale industry — not only in the eastern border regions, but through-
out the rest of the country as well. This development was caused by a huge
demand for consumption goods on the internal market, as well as the low
interest rates. Many qualified industrial workers, left the government en-
terprises and — thanks to the low interest rate — managed to set up their
own small workshops, which were more involved in production than in pro-
viding repair services. Some
of
the enterprises had an automated production
process and due to comparatively higher wages, they had relatively no prob-
lems with worker recruitment.
A new direction of industrial privatisation accepted by the government,
was the creation of foreign small scale industries. Until 1982, such enter-
prises were known as "Polish-foreign" enterprises, as their owners were
usually citizens of other countries but were of Polish descent. Such foreign
firms played only a small role in the privatisation of industry in Poland as
a whole, and an even smaller role in the eastern provinces.
The legal basis for creating mixed companies with private foreign capital,
known as 'joint ventures', has already existed since 1986. The foreign small
scale industries mentioned above, readily transformed themselves into such
enterprises. However, the first such industrial joint venture, came into ex-
istence only in 1988. Until 1991, joint ventures, which usually had the legal
status of the limited company, did not play a serious role in the privatisation
of Polish industry, especially in the eastern border regions (Misztal, 1993).
The legal basis for privatisation was actually only created in 1990 ac-
cording to the act of the 13 July 1990 which foresaw the privatisation of
state-owned enterprises and the creation of the Ministry of Ownership Re-
construction. The Minister for Ownership Reconstruction, was responsible
for indicating which state industries were meant for privatisation. At the
same time, due to the amendments made to the civil code in 1990, the
concept of the public sector according to Polish law — stopped existing. This
resulted in cooperative enterprises, foundations, social and political or-
ganisations as well as labour unions being incorporated into the private

188 STANISLAW OSINSKI
sector. The above decisions caused fundamental changes in the ownership
structure of industry. The process of economic transformation, which was
occurring at the same time, forced all enterprises to restructure and ration-
alise their labour force, adding to the increase in unemployment.
As a result of privatisation, the ownership structure of industrial enter-
prises from 1985 to 1997 entirely transformed itself. The industry of eastern
provinces in 1997, was dominated by the private sector, which concentrated
71.4% of all workers employed in industry (Dziakowska, Osiriski, 1999).
The privatisation in the weakly industrialised regions of the eastern part
of the country, took on a somewhat different character to privatisation in
the more industrialised regions. In the latter areas, the dominating form of
ownership transformation in industry was so-called capital privatisation,
whilst in the former regions — including the provinces forming the "Eastern
Wall" — this involved the liquidation of state owned industrial enterprises.
THE SIZE STRUCTURE OF INDUSTRIAL ENTERPRISES
The most commonly used criterion in determining the size of an enter-
prise, is the number of employees (Wielonski, 1996). In this study, five dif-
ferent size groups of industrial enterprises are assumed. Businesses employ-
ing at least 500 people are termed as large, enterprises employing 100-499
people are classed as intermediate, from 10 to 99 workers — as small and
below ten workers — as micro-enterprises. The micro-enterprises were fur-
ther divided into two groups: those employing up to four workers are termed
as family micro-enterprises and those employing from 5 to 9 people as larger
micro-enterprises.
In the eastern border voivodships in 1985, similarly to the rest of the
country, the highest employment was in large industrial enterprises. These
employed 103.6 thousand workers, which represented 42.2% of the total
labour force employed in industry. This was due to the preference of socialist
planners for very large industrial plants, which in turn tied in to expecta-
tions of increasing returns to scale (decreased unit costs of production). 78.9
thousand people (32.5%) were employed in intermediate industries, and in
the small ones 51.1 thousand (21.0%). The micro-industries — especially
the family ones — were only of a marginal importance. They employed only
5.6 thousand people (2.3%) and 3.6 thousand people (1.5%) respectively. In
comparison to the rest of the country, the share of small enterprises, inter-
mediate enterprises and micro-industry in employment was relatively higher
(57.8%), which was the result of the limited importance of this region in
the industrialisation policy of the country, rather than in the recognition of
the importance of such industrial units.
From 1985 to 1997, various positive changes in the structural size of
industry in the studied region took place. Although employment in industry
decreased by 54.6 thousand people (22.5%), the decrease in employment

STRUCTURAL CHANGES IN INDUSTRY 189
only occurred in large enterprises — 32.9 thousand people (by 31.8%), in-
termediate enterprises — 20.2 thousand people (25.7%) and small enter-
prises -15.6 thousand people (by 30.5%). Employment however, rose in the
micro-enterprises, by 12.9 thousand people in the family industries — a
fourfold increase of 360.2% — and by 1.3 thousand people (24.0%) in the
larger micro-industries.
Despite the positive structural changes that took place, the situation in
this respect is still far from satisfactory. In 1997 the highest employment
was still in the large enterprises — almost 37.6%. A somewhat smaller
employment occurred in the intermediate and small industries — 31.1%
and 18.9% respectively but the smallest employment was in the micro-en-
terprises — 12.4%. In comparison to 1985, the share of family micro-enter-
prises in total industry rose considerably to 8.7%, whilst the share of larger
micro-enterprises rose by a more modest 3.7%. However, the share of the
other groups in industry decreased.
The substantial rise in employment in the smallest enterprises was as-
sociated with 'founder' privatisation (so-called bottom up privatisation),
based on creating completely new firms. Very often these are family-indus-
tries producing clothing, furniture or shoes. The sharp rise in the number
of micro-enterprises serves as proof of the ever growing popularity of this
form of industrial privatisation, but at the same time of the difficulties
facing new firms — at the first phase of economic transformation — in
obtaining capital, which disenables them to develop their businesses onto a
somewhat greater scale.
THE BRANCH STRUCTURE OF INDUSTRY
The socialist policy of industrialisation did not promote a modernisation
of the industrial structure. Its main concern was the creation of means of
production. An ever increasing technological gap was continuing to develop
between Polish industry and the industry of highly industrialised countries.
Although attempts at partial reforms in the eighties, created new conditions
for the functioning of industrial enterprises, which became economic units
that were: independent, self-controlled and self-supporting, they did not lead
to changes in the branch structure of industry.
In 1985 the largest number of people (25.2%) were employed in the elec-
tromechanical sector, which was essentially one the most modern sectors
at the time. There was also a high employment in light industry (20.1%)
and the food processing industry (19.6%). An important role was also played
by the mineral (11.1%) and the wood-pulp (11.0%) industries.
From 1985 to 1997 the highest decrease in employment — in absolute
values — occurred in the electromechanical sector, a fall of 34.3 thousand
employees (or 56.1%), in light industry — 12.7 thousand people (or 26.1%),
the mineral sector — 11.3 thousand people (or 41.9%) and the wood-pulp

190 STANISLAW OSINSKI
industry — 6.9 thousand people (or 25.7%). Thus the most significant de-
clines occurred in the sectors that played the most important role in the
industrialisation of the region.
In 1997 the largest employment was in the food processing industry
(23.2%), light industry (19.1%), the electromechanical sector (14.2%) and the
wood-pulp industry (10.6%). There were significant changes in the structure
of industrial sectors in all the voivodships. The electromechanical industry
did not remain the most significant industrial sector in any of the voivod-
ships. In 1997, the main source of employment in the seven studied
voivodships was the food processing industry in three of the voivodships,
and light and chemical industry in the other two.
The decrease in the employment in the electromechanical industry was
the result of the liquidation of factories, and in the decrease of employment.
These industries were usually the affiliates of enterprises from larger in-
dustrial centres such as Warsaw, which produced goods for the markets of
the member states of the Council for Mutual Economic Assistance (Com-
econ). It was however, the traditional industries that best adapted them-
selves to the new conditions, taking advantage of the local production
potential and the local market e.g. the food processing industry. These in-
dustries, which were mostly quite small, were more elastic in adapting
themselves to the production profile of the new economic environment.
SUMMARY
The number of employees working in industry in the eastern border
voivodships from 1985 to 1997, decreased by a similar degree as in the rest
of Poland, which in effect did not influence the change in the disproportion
in industrialisation of the studied region and the country.
The greatest and most positive changes occurred in the ownership struc-
ture. They were based on an increase in the employment in the private
sector. In the second half of the eighties the changes in the ownership struc-
ture of industry were relatively small and they were only accelerated in the
nineties, after the passing of the act involving the privatisation of state
owned enterprises.
From 1985 to 1997 the number of workers employed in large, interme-
diate and small enterprises decreased, whilst a large increase was apparent
in the micro-enterprises. The changes in the size structure, based on the
limiting of the role played by large industries in favour of the smaller in-
dustries, should also be viewed as a positive result. What is less favourable
however, is the decrease in employment in intermediate and small enter-
prises. Without a doubt, a very positive occurrence is the development of
many micro-enterprises, headed by private individuals. Yet, unfortunately
these are enterprises with a very limited production potential, and many
are facing imminent liquidation.

STRUCTURAL CHANGES IN INDUSTRY 191
Changes in the structure of industrial sectors, were mainly due to the
decline in the role played by the most important and most modern industry
in the border regions, i.e. the electromechanical industry. Although in com-
parison to economically developed countries, this was an industry with a
relatively low technical standard, it belonged to the most modern branch of
industry in Poland. A large decrease in employment also occurred in min-
eral, wood-pulp and light industry whilst only a relatively small change in
employment occurred in the food processing industry. As a result of this,
the food processing industry became the most important enterprise of the
studied region, managing to outskirt the electromechanical and light indus-
try. The electromechanical industry did not play the most important role
in employment in any of the studied voivodships in 1997.
The structural changes of industry in the eastern border regions — as
in the rest of the country — are contrary to the characteristic tendency
shown by developed countries and they are based on a decrease in partici-
pation of progressive sectors of industry, and the increase in the participa-
tion of traditional industries, allowing a rise in production without
significant capital outlay. The positive changes in the ownership structure
of industrial enterprises and to a lesser degree the size structure, have not
— as up till now — been reflected in any profitable changes of the structure
of the industrial sectors and they depend on the rise of importance of traditional
branches of industry, and limiting the role played by modern industries.
To sum up it can be said that the eastern border provinces experience
almost all the problems and shortcomings of industrial development, which
are characteristic for the rest of Poland as well as other local problems
resulting from the historic neglect and underdevelopment of this region.
From the point of view of industrial development, it is still to early to tell
whether this region can be definitely treated as the "Eastern Wall" or pos-
sibly the "Eastern Zone of Economic Activity". This can be said, as from
1985 to 1997 there was a only slight rise in the regions participation in the
total industrial employment of the country and in the value of its capital
goods, whilst at the same time there was a decrease in its participation in
total industrial investment and, what is most worrying, in the value of goods
sold. The rise in economic activity of the eastern border regions relates to
services rather than production.
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