Corruption, forced bribes, mobbing
No 'Law and Justice' forCanadian, U.S. Entrepreneurs in Poland
By David Dastych
Sunday, August 26, 2007
Warsaw, Poland-An early election campaign began in Poland this Saturday, August 25. Listening to the radio, I thought it was Vladimir Putin entering a Kremlin hall, welcomed by a loud flourish of trumpets. But it was a fanfare prelude for a speech of Prime Minister Jaroslaw Kaczynski at an American-styled "Law and Justice" party National Convention in Gdansk.
The Convention was held at the "Olivia" Hall, known and memorable of the past rallies of the then Lech Walesa's Solidarity Free Trade Union, a 10--million strong popular movement that ended Communist rule in Poland in the 1980s. Now, the ruling PiS ("Law and Justice" party) was using the same premises to trumpet its successes and to reforge their obvious failures of the past two years into an expected new election victory. The main opposition party, the PO ("Civic Platform") held its leadership meeting on the same day, in Warsaw. Its leader, Donald Tusk, sharply criticized and attacked his opponent, Jaroslaw Kaczynski, and the policy of his PiS party.
Ironically, both Polish leading political parties, PiS ("Law and Justice") and PO ("Civic Platform") claim their roots in Solidarity and both of their leaders -- Kaczynski and Tusk -- were former anti-Communist activists in Gdansk, at the Baltic Seaside. Now they compete against each other in a bitter fight for power, each of them announcing that his party is the best to reform Poland. While the identical Kaczynski Twins (Lech -- the President, Jaroslaw -- the Prime Minister) defend their concept of a strong and 'solidarity' interventionist state, Donald Tusk advocates a 'civic state' with smaller, decentralized government and free enterprise. In the past elections of 2005, it seemed that P0 and PiS were closer to each other and could eventually form a "POPIS" coalition ("popis" means a 'show' or 'display' in Polish) based on common values. But "POPIS" collapsed before it was born.
This is the political landscape in which, presumably without any significant contribution of PO and PiS, the Polish national economy is at its highest ever growth level. The economic trends in Europe and in the world are favorable for Poland, which was the first European post-Communist country to radically change its economic system and then become a member of the European Union. The economic reforms began here at the end of the Communist rule, in the 2nd half of the 1980s, from a government that foresaw a near collapse of the regime. Prime Minister Rakowski and his economy minister -- Wilczek (his name means "young wolf") gave a boost to the emerging private enterprise by accepting a sharp-witted principle: "What is not forbidden by law, is allowed." And thousands of private companies began to flourish. But it wasn't like the doomed Lenin's "NEP" or Mao Zedong's "100 Flowers Blossom". It lasted. The unexpected great success of the Polish economy and the stability of the Polish currency drew a lot of foreign investments, both short-term 'venture capital' and more solid, long-term investments into the industrial, commercial and other infrastructure. A yearly flow of foreign capital to Poland soon exceeded US $ 10 billion.
Reformists and Bureaucrats
The founding father of Poland's capitalist economy was Professor Leszek Balcerowicz, a former Communist Party member turned oppositionist and a hard-line monetarist. After the peaceful regime change in 1989, he became the "guru" of the Polish national economy and an all-powerful government minister. Facing a sky-rocketing inflation and a lack of domestic capital, Balcerowicz plowed the Polish economy by harsh decisions, taken from day to day. The initial liberal reforms of his predecessors, Rakowski and Wilczek, were to be extended and deepened at any cost. Almost instantly the state subventions were cut to the state-owned enterprises and to the state-owned and cooperative agricultural farms. Millions of workers lost their jobs and every Polish household had to pay their share of the reform cost. But in just a few years, the Polish currency (zloty) regained its true value. The rampant inflation had been beaten down and a great surge of private firms emerged and developed. The liberal reforms helped Poland to become the leading economy of the post-Communist part of Europe.
But soon the ever changing and short-lived governments, alternatively formed by Solidarity-leaning parties and by post-Communist parties, began a process of reducing the economic liberties. Bureaucrats expanded state budgets, which were always in need of more tax money. The great economic reforms began to falter and corruption developed, as more and more economic decisions fell into the hands of clerks and politically controlled officials. The abnormal 'political economy' of the corrupt government and state-controlled corporations grew simultaneously with the healthy and rapidly expanding private-controlled sector. The worst of all became the formation of political-business-mafia structures, which had enough leverage and money to sponge on the national economy. Crooked deals with foreign businesses expanded and foreign investors, who were not complying with the informal structures and who refused to pay bribes or cede a part of their assets to mobsters, were being brutally eliminated from the Polish market.
A Tale of Two Entrepreneurs
Any illegal connection between the domestic corruption and the foreign capital can produce 'side effects', which could be very harmful to the country's international reputation. The number of such connections in Poland grew over the years and placed this country on a low position on a list of the world's most transparent and non-corrupt economies.
A Canadian newspaper in Nova Scotia, The Chronicle Herald, has just published an article, written by their Washington D.C. correspondent, Mr. Bogdan Kipling: (thechronicleherald.ca/Opinion/855085.html) "Europort: a tale of two entrepreneurs in Poland". A dramatic plight of a Canadian and a U.S. investor is a meaningful example of pathology still present in the Polish economy.
Mr. Donald LeBlanc, an engineer from Halifax, on the Canadian East Coast, and Mr. Joseph d'Andrea, an industrial and commercial developer from Scranton, PA, in the United States "set out a dozen years ago to build a grain terminal in the Port of Gdansk. Today they stand the chance of losing their shirts and millions of dollars for their efforts."
The author of the article presented both of them as experienced and reliable businessmen:
"Mr. LeBlanc is president and CEO of Dessaport International Corporation, a small holding company in Halifax. Mr. D'Andrea made a sizable fortune in trading and building for the rich and the poor. Both became active in Poland in the mid-1990s and Europort was their brainchild. So convincing was Don LeBlanc's and Joe D'Andrea's Europort proposal, they soon got the backing of the European Bank for Reconstruction and Development, the Royal Bank of Canada and the Saskatchewan Wheat Pool. These were sober-sided financial institutions, and in the case of the Saskatchewan Wheat Pool, a world-class player in the grain business."
" But that was the situation in the early days (1990s), when Warsaw was helpful, the locals warm and welcoming, and the Port of Gdansk management fully on board" -- Mr. Kipling continued. "Of that good climate, only the warmth of the locals remains today (...) Back then, in 1996, the extensive feasibility studies were well underway, Mr. LeBlanc related to me in several long telephone calls to and from Halifax. The ambitious project showed every promise and in December 1997, the European Bank confirmed $65 million of financing -- half of it from the Royal Bank of Canada."
But in the later years the situation in Poland became intolerable:
"By 2002, the climate had changed from fair forecast to foul weather. Don LeBlanc talked and what I heard boils down to a sad account of Polish governments and authorities getting more rotten, more greedy for bribes, more arrogant by the day; and the only thing that remains constant is the hospitable warmth of ordinary Poles (…) The dozen years of experience the Canadian and American entrepreneurs have under their belts warrant attention. When they started the grain port project, nobody questioned Poland's economic freedom, its clear course toward full integration with Western Europe and Western values. Corruption was widespread back then, too; but the last five years seem like an unbroken chain of attempted expropriation, extortion, exorbitant legal costs and unpleasantness (…)Between 2002 and late 2005, a nasty, corrupt clique of former communist apparatchiks held power in Warsaw and in the Port of Gdansk. It was then that the Canadian and the American port pioneers were told their lease on the pier, where work had already started on the grain facility, was invalid. The Port Authority could do with it as it pleased and tried to enforce rule with, among other tactics, the guns of the security guards."
A US $ 1.5 million bribe
The author of the article described the insolent and wicked, unpunished behavior of a Polish high official:
"When Mr. D'Andrea sought redress, he told me, a highly placed intermediary said: "My birthday falls on the 13th. That's my lucky number -- and my commission." Off the top, he demanded five million zlotys -- $1.5 million US."
The desperate investors linked their hope for justice to the government change, but all in vain:
"In late summer and mid-autumn 2005, PiS -- Law and Justice party -- won parliamentary and presidential elections and Don LeBlanc and Joe D'Andrea saw hope returning."
Yet nothing positive had happened:
"It got worse," says Mr. D'Andrea. Demands for bribes are as brazen as ever and government officialsmore arrogant than ever. The Canadian and the American embassies have tried to help and got nowhere."
The author of the article could only draw a negative conclusion:
"The courts, though, still function in Poland and restored Europort's lease. The final outcome, though, may depend on the depth of Mr. LeBlanc's and Mr. D'Andrea's pockets -- and political change."
Will elections help?
"Early elections loom in Poland and the twins' [party] ironically named Law and Justice offers clumsy anti-corruption cops, but no convincing plan of reform that would end the scandals the entrepreneurs have to endure." -- concluded Mr. Bogdan Kipling, a Washington D.C. correspondent for the Halifax-based, Chronicle Herald.
Please note: this is only one, relatively small example of the plight of two honest foreign investors in today's Poland. Maybe Poland is not the worst place to invest. But the mafia-type interconnections still prevail, and the fight against secretive and omerta bound mob groups is always very difficult. All political parties on the Polish scene promise a 'clean up' of the economy from pathological structures. Yet, no political party, including the proverbial "Law and Justice", can really assure lawfulness and justice to local and foreign businessmen, who dare to invest their money, their efforts and their goodwill in this country.
No one expects a miracle. The fight against the deeply entrenched corruption and other illegal practices demands much more effort and persistence. It also takes time. But there is no other way around this: Polish voters will soon decide who will rule in Poland for the years to come. They better put their stakes on a good horse.
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