A group of experts, which they formed together with Balcerowicz, including Stanisław Gomułka, Stefan Kawalec and Wojciech Misiąg, in September 1989 created a reform plan based on an earlier idea of Jeffrey Sachs, and on October 6, an outline of this plan was presented to the public by Balcerowicz at a press conference broadcast by TVP.
The plan has resulted in reduced inflation and budget deficit, while simultaneously increasing unemployment and worsening the financial situation of the poorest members of society.
Initially, it was agreed that the government would be formed by Tadeusz Mazowiecki and the opposition, while the seat of the president of Poland would be given to former Polish United Workers' Party leader Gen. Wojciech Jaruzelski.
In 1982 the government imposed further large (up to 100%) price increases and significantly extended rationing of food and other basic goods.
[2] In the late 1980s, after 45 years of communist rule, Poland's economy was ineffective, paralyzed by central planning and discontent of poorly paid workers.
[4] Although there was practically no unemployment in Poland, wages were low and the shortage economy led to lack of even the most basic foodstuffs in the shops.
The IMF's support was especially important because the national debt in various foreign banks and governments reached an amount of US$42.3 billion (64,8% of GDP) in 1989.
Following this, the World Bank granted Poland additional credits for modernization of exports of Polish goods and food products.
[11] Nevertheless, as a result of the bankruptcies and liquidation of many state-owned enterprises and the reduction of employment in those that survived, the unemployment rate after the political transformation reached a level in the order of 16.4% in 1993.
Polish economist Andrzej Karpiński estimated that about 25% of these liquidations were directly planned by the government, while the remaining 75% were a result of land speculation and hostile takeovers.
Karpiński estimated that in case of a strictly controlled and limited privatization process, unemployment would have been 50% lower, and national income 33% higher.
Because the Balcerowicz Plan involved austerity, the proceeds from privatization were not invested or allocated into development programs, but were kept in the state budget.
The plan resulted in a budget deficit through extensive trade with main foreign partners and an "avalanche" of imported goods in Poland through lack of regulation.
This lack of large enterprises made Polish economy on importing technology from abroad, and is also considered a factor in stifling innovation and brain drain.
[15] A factor also considered an effect of the transformation that contributed to brain drain are low wages, that continue to persist in Poland.
Marianna Księżyk wrote in 2013: "The assurances of economists carrying out the market-oriented transformation about Poland's rapid development and society's glorious capitalist future have not come true.
[16] In 2005, the Federation for Social Reintegration estimated that the so-called old poverty (about 1,000,000 families nationwide, marginalised and affected by social pathology for many generations) had been joined by more than 1,500,000 families of the so-called new poverty, i.e. people whose life situation had dramatically deteriorated as a result of capitalist transformation implemented by Balcerowicz.
In the long term, according to Sutowski, "it is another brick in the wall of contempt for the state and the sphere of the public good, portrayed as a hotbed of incompetence, entitlement and vested interests inhibiting capitalist modernisation."
Sutowski sums up: "In one government report on the subject, we can read that parents finance the operation of public education to the tune of 17 per cent, e.g. by bringing coal to schools; teachers have had their already meagre salaries cut.
"[17] The Balcerowicz plan has been criticised[18] for having contributed to a significant decline in the living wage of numerous groups of the population, especially workers in unprofitable state-owned enterprises and the state agricultural farms, creating poverty areas and structural unemployment, which in many places continues to this day.
[11] Some economists[19] also criticized the Balcerowicz plan for insufficiently protecting the internal market during the transition and of allowing entire sectors of the economy to collapse for many years as a result of the lack of a state policy to influence its structure.
Among the most frequently criticised (mainly by Grzegorz Kołodko)[20] elements accompanying the introduction of the plan include: According to some economists, in the 1990s the plan led to a collapse of domestic demand, flooding the domestic market with imported production, as well as the collapse of state enterprises indebted by financial policy and the sale of the best of them into the hands of mainly Western capital.
The plan's most decisive effect for generations was to create the possibility of privatising state assets in the Latin American formula in the form of selling off, to the point of economic partition, enclaves of modernity and profitability to foreign corporations for 4.5-5% of their replacement value.
[23] Tadeusz Kowalik was also sharply critical of the course and effects of the transformation, accusing Balcerowicz of a reluctance to consult and disregarding the opinion of others.
Kowalik argued that privatisation benefited the few who firmly held the once chosen course of transformation, and that what emerged was "a market economy that did not suit the majority of Polish society".
"[25] Witold Kieżun wrote similarly of the plan, arguing that instead of creating a team of professionals made up of Polish professors working at Western universities, "it was decided to do the transformation under the dictates of a young, inexperienced American, Jeffrey Sachs, and a few capitalistically indoctrinated party academics".
Interventionism was attempted late, and in the period of the ‘systemic void’, monetary and fiscal policy instruments worked differently than in a properly formed market economy.
[11] The recession in the real sphere was also caused by the drastic increase in the level of interest rates from the beginning of January 1990 and their maintenance until the end of February.
Kołodko states that the ‘side effect’ of the transformation process in the form of a deep recession must be assessed in a negative way, writing that "a 30% drop in industrial production would have been a very difficult cost to accept, even if the stabilisation of the economy had been unequivocally successful".
According to Kołodko, in 1990-1991 the Polish economy was affected by the phenomenon of slumpflation, i.e. a decrease in production and an increase in unemployment was accompanied by high inflation.