Success Is a Clean Cut. — Julien Reszka

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A decade of gradual reform deepened Poland's crisis. A complete break, done all at once, ended it faster than every gradual alternative.

2 Years How long Poland's recession lasted after its 1990 economic reforms, before growth resumed, the earliest turnaround of any post-communist transition economy Berg, A., Blanchard, O., Stabilization and Transition: Poland 1990-91, University of Chicago Press, 1994

Poland tried to fix its planned economy gradually for most of the 1980s. Foreign debt nearly doubled to about 40 billion dollars. Martial law suppressed the opposition in 1981 while inflation passed 100 percent. Shortages of milk, sugar, and meat led to rationing that lasted the decade. The government attempted partial liberalizations in the early 1980s and again in 1987 and 1988. Research on the period found these gradual reforms did not ease the crisis, they deepened it.

On January 1, 1990, Poland did the opposite. Ten laws took effect at once: prices freed on nearly all goods, the currency made convertible, credit tightened sharply, and the budget pushed toward balance. It became known as the Balcerowicz Plan, after the finance minister who designed it with advice from the economist Jeffrey Sachs. Sachs later described the logic behind doing it all at once: "if you cut off a dog's tail, you don't do it in little bits."

The cost was real and immediate.

Prices jumped 80 percent in January 1990 alone as controls came off

Unemployment rose from close to zero to 16.4 percent by 1993

Output fell for two years before growth resumed in 1992

That two year recession was the shortest of any post-communist transition. Hungary, which reformed more gradually and started from a stronger position, took about five years to recover its pre-transition output. Russia's industrial output fell more than 60 percent between 1992 and 1998, a steeper collapse than the United States saw in the Great Depression. Some economists argue Hungary's stronger starting position, not the pace of reform alone, explains part of the gap. The shock therapy versus gradualism debate remains unsettled in the literature. But no economy that chose the slower path recovered faster.

The gradual reforms of the 1980s failed for the same reason most gradual fixes do. A failing choice that gets gradually defended instead of replaced can keep functioning just well enough to avoid the decision that would have actually changed it. A softened version of a real fix is not a smaller real fix. It is a way of postponing one.

The same choice shows up at a much smaller scale. The job you are easing out of with a two week notice instead of quitting today. The diet you are gradually adjusting instead of actually changing it. The feature you keep tweaking instead of killing. All of it is the same bet Poland's government made for a decade: that a smaller version of the fix is safer than the whole thing.

Poland's mistake in the 1980s was treating the decision to replace its entire economic system, a one way door, as if it were a two way door it could ease into a little at a time. The reform that actually worked started by getting that classification right: some decisions cannot be made gradually. They can only be made, or not.

Myth: Gradual reform is the safer, less painful way to fix a failing system.Berg, A., Blanchard, O., Stabilization and Transition: Poland 1990-91, University of Chicago Press, 1994

“If you cut off a dog's tail, you don't do it in little bits.”Jeffrey Sachs, economist who advised Poland's 1990 reforms, recalling the logic behind their pace

Before choosing the gradual, less disruptive option, check whether gradual attempts have already been tried and failed. If they have, treat the decision as a one way door: commit fully and stop patching.

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See also

You're Not Ready to Compete with Self Disruptive Companies

Rent and Pensions Eat Half of Your Disposable Income

Your Pension Depends on Kids You Did Not Have

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