The MacNeil/Lehrer Report; The Polish Economy and Rising Tensions with the Soviet Union

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ROBERT MacNEIL (voice-over): The Soviet Union conducts massive military maneuvers on Poland`s borders as Solidarity makes new freedom demands, and the Polish crisis escalates.

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MacNEIL: Good evening. Thousands of Soviet marines, backed by bombers and artillery, staged landing exercises near the Soviet border with Poland today. At the same time, alarmed Soviet news media escalated their propaganda campaign against Poland`s free union movement. Solidarity. Tension has risen markedly in Communist Europe since the year-old movement closed its party congress yesterday with startling demands: free elections and free unions for other East bloc nations. All Soviet newspapers today branded the congress in Gdansk as an and-socialist and anti-Soviet orgy. Reuters` Moscow correspondent said Western diplomats believe the Kremlin`s patience was wearing very thin. Western observers said the naval maneuvers, involving the biggest Soviet fleet seen in the Baltic since World War II, and widely shown on television, demonstrated that Moscow could seal off Poland at will by sea as well as by land. This rising tension coincides with another important development: a meeting in Paris of Western bankers to discuss help for Poland`s staggering economy. Tonight, the Western dilemma: how to help in all this chaos. Jim?

JIM LEHRER: Robin, the Polish government and Solidarity have been playing a deadly game of brinkmanship for a year, now, since Solidarity first rose up out of protests over meat prices to become the most significant, revolutionary force ever in Eastern Europe`s communist world. Solidarity has caused miraculous changes in Poland, each change coming after confrontation, strikes or threats of strikes, and then an eleventh-hour solution, a solution that usually involved the government making still further concessions to Solidarity. Each episode has been shadowed by the threat of Soviet intervention, by the ominous question of whether this time it had finally gone too far. Once again, we`re to that same ominous question, and we put it now to Howard Wachtel. chairman of the economics department at American University here in Washington, who just returned from Poland, where he met with Solidarity and government officials as well as academics and others. Is this it for the Soviets, Professor Wachtel?

Prof. HOWARD WACHTEL: Well, Jim, you have probably asked the 64,000-zloty question.

LEHRER: Right.

Prof. WACHTEL: And although some of my critics have occasionally accused me of having a pipeline into the Soviet Union, I can`t go into the -- inside the heads of the Soviet policy makers. Let me say this, however. I don`t think it`s time for an imminent invasion. When you`re in Poland, the kind of threat and ominous cloud of Soviet intervention in Poland seems much less serious than when you`re back in Washington. It`s a more serious question here than in Warsaw. The reason for that, I think, is several. First of all, many Poles we talked to were resigned to it. They said, "If it happens, it happens. But we certainly, at this point in time, cannot condition our behavior on what the Soviets might do or might not do. Otherwise we`d lose our freedom and independence, which we`ve been fighting for for the past year if not longer." So I don`t think it`s a live question, at least among the people that I was able to talk with in Warsaw,

LEHRER: So in other words this massive maneuvers that the Soviets are involved in on the Baltic Coast is like -- you don`t think that would have any effect, either, in terms of intimidating Solidarity or causing them to back down or off in any way?

Prof. WACHTEL: It hasn`t in the past, and at this point I see no evidence that it`s had any effect whatsoever on Solidarity`s own internal decision- making apparatus. It might be a show for the other East European countries; it might be a warning to them. One can`t tell. However, I think the most important thing for a public policy -- especially for public policy in the United States -- is to make some decision about what we think is the best way to approach the Polish situation. I don`t think the best way to approach it is in the classical cold war-East/West-United States v. Soviet Union terms. There are far greater issues at stake here than trying to see it through, I think, that very narrow prism. We have to have a broader perspective on this. There are questions that might be of a great historical moment. It might be the end of one of the last great imperial empires. The British Empire declined. Ours declined around the war in Vietnam. This might be a signaling for the decline of that Soviet empire. And I think more important for the Poles is an understanding that there are clear, consistent standards and policies with respect to how the United States is going to approach these questions.

LEHRER: Well, we`ll get to the United States in a moment, but back to Poland, as to how the Polish people might react on this sort of thing. I mean, from the standpoint of what Solidarity did, and their final resolution at the congress, which is the -- which do you think makes it the most difficult for the Soviet Union to swallow? Is it the call for free elections, or the call for other free union movements in other Eastern European nations?

Prof. WACHTEL: Well, I think we have to separate the wheat from the chaff. This was a very important convention. And just like any party convention, of a political party in the United States, you have to discard 80 percent of what it said. It`s written and said in the excitement of the moment. Now, of course, some of the things that Solidarity said and put on paper could come back to haunt them, and that`s a very serious concern. But I think the central thrust of that convention was to try to get Solidarity and its organization in shape, try to find some way to move forward to the next step, which is a discussion of serious programs for economic reform that Solidarity wants to put forward. When you open up everything, however, lots of issues on the tangent come up. And the question is how important are they in terms of what was Solidarity`s main purpose. As I say, they can come back to hurt them later on.

LEHRER: Well, the analogy you used -- as a political convention -- isn`t Solidarity essentially serving notice on the Polish government, and of course the Soviet Union, that they are now going to get involved in politics, and for all practical purposes would like to be a political party? Isn`t that really what happened in that congress?

Prof. WACHTEL: I think we might draw the line at "political party." Whenever you have an economic organization it by definition has to be political if it`s to be effective or influential at all. And certainly that`s even truer in the case of a centrally planned economy where everything is publicly owned, and operates through the political process. Whether it becomes a political party in that sense, or a group that advocates political reforms within the general context of having the Communist Party being the only party in Poland, is another question. There are, you know, models of other East European countries where that has gone on.

LEHRER: All right, thank you. Robin?

MacNEIL: Now a view of the state of the Polish economy as Western bankers and governments contemplate further aid and casing the burden of Poland`s great debt. Jan Vanous monitors the Polish economy for the Wharton Econometrics Forecasting Service, which is used by financiers to assess economic conditions abroad. Mr. Vanous, first of all. you know Poland very well. Let me just pick up on what Jim`s been talking about with Mr. Wachtel. Do you think that this time Solidarity has come near the end of the line on Soviet patience?

JAN VANOUS: No, I still don`t think so because -- this is fascinating issue to me because I`m always comparing Czechoslovakia and Poland. And I feel that in [the] case of Poland, Solidarity has much stronger hand than, let`s say, Czech reformers had. simply because an invasion -- Soviet invasion -- of Poland would have such huge costs -- not only for the Soviet Union, but for the other East European countries, that the Soviets are extremely hesitant and really would only take such move as a last step of desperation.

MacNEIL: So we should not be more significantly alarmed tonight than we have been a number of times in the past year, would you say?

Mr. VANOUS: I don`t think so. I still have a lot of patience and optimism.

MacNEIL: Right. Okay. The Polish economy. In shorthand terms, could you sketch in what you see as the state of that economy?

Mr. VANOUS: Well, you have an economy where the national income -- total output of the economy -- is declining for the third year in a row. This year it`s expected to decline somewhere around 10 to 12 percent. Industrial output is falling at an even faster rate, perhaps 12 percent. There are acute shortages of consumer goods. Incomes are increasing at a rate of 25 percent, although output is falling, so therefore there is a huge discrepancy between the incomes of the population and availability of goods. What is necessary in the Polish -- really to sort of shape up the Polish economy is to undertake a major economic reform, and as part of that reform what it will require is making some very painful decisions. And among them is, for example, a major price increase for consumer goods, a reduction of standard of living, and generally asking the people of Poland to tighten their belts.

MacNEIL: Some of the things that the present government has already begun implementing. Is there any prospect of their succeeding in that effort?

Mr. VANOUS: Well, they have to. They don`t have much of a choice. I feel they are having a hard time. They are having a hard time persuading the population and Solidarity to accept the sacrifices, because what people of Poland feel is that it`s the government who is responsible for the past mistakes, but it is the population that is being asked to make the sacrifices. Now, what they would like to see is that the government takes steps that would indicate that everybody will make sacrifices, that people who make wrong decisions in the past will be removed; new people will be instituted into the key decision-making positions; and that a serious effort will be made to get the economy back into shape. I don`t think that the Polish government has taken sufficient steps up to now to persuade the population. And that`s why it is running on a collision course with the Solidarity leadership,

MacNEIL: What is the economic equation, looking at Poland, for the West? If you were a Western government or a Western banker, what should, and what could best be done to help the situation?

Mr. VANOUS: Well, if you look at the situation through the end of this year, Poland desperately needs just to cover its current account -- deficit -- something like $2 to $ 2 1/2 billion in loans. Additional loans are unlikely to come from commercial banks for obvious reasons. So what is left is --

MacNEIL: "Obvious reasons" being that they have such large loans outstanding?

Mr. VANOUS: In the first place, and that Poland doesn`t sound like a good place to put more money into for commercial reasons. Therefore, they have to turn either to -- to possibly the International Monetary Fund, but that can be ruled put because Poles have yet to make an application. And the remaining two possibilities are, either Western governments or the Soviet Union. I feel that somehow the burden will have to be divided. It`s likely that Western governments will be approached for a major loan somewhere in the vicinity of $750 million to $1 billion, and hopefully in the fourth quarter of this year. Soviet Union will advance another hard-currency loan to Poland -- somewhere between $1 and $l 1/2 billion. This should tide over the Polish economy, at least through the end of the year, and perhaps through March of next year. But then again, they`ll be back to the ` same problem: what will happen next year?

MacNEIL: Well, thank you. Jim?

LEHRER: We get a second opinion now on the economics of Poland from Fred Bergsten, assistant secretary of the Treasury for international affairs in the Carter administration. The question of economic assistance to Poland was one of his responsibilities then. He is now a senior associate at the Carnegie Endowment for Peace, and soon will become director of the new Institute for International Economics. Is it in the United States` interest to help Poland economically?

FRED BERGSTEN: I think it is. The overriding issues from the United States` standpoint in Poland are political and moral. This is a historic possibility in Eastern Europe. The changes and liberalization that are going on conform to our values and our interests in the way the world, and people around the world, should be able to live. So I think those considerations dominate, and suggest that we should help wherever we can. At the same time, however, we would certainly want our economic help to spur economic reforms and improvement in the Polish economy to the maximum extent possible.

LEHRER: What kind of conditions could be imposed on that kind of help? I mean, how could the United States go, say, to a -- remember, the money doesn`t go to Solidarity; it goes to the communist government. What could you tell them to do in exchange for this $ 1 billion, say, that Mr. Vanous thinks they might ask us for?

Mr. BERGSTEN: Well, you can`t tell them to do anything very clearly or very blatantly. But you can look at the plans that they have for their own economy, and suggest certain possible reforms.

LEHRER: Like what? Give me an example of what they could do.

Mr. BERGSTEN: In the short run, there`s a great opportunity for expansion of Polish coal exports if they would simply put more manpower and more effort into exploiting their own .coal resources. Coal is in heavy demand around the world -- particularly in Western Europe; the Polish mines are not working at anything like full capacity; they could expand on export earnings quickly. Similarly in agriculture. There are some fairly rapid possibilities for expanding productivity in Polish agriculture, which would then reduce their import bill, and also help deal with this resource gap that they face.

LEHRER: As you know, the Wall Street Journal and others have suggested, "Hey, wait a minute. This is a communist government; it`s a failure. It isn`t working. Why in the world is it our responsibility to-come along and shore it up, and forestall its failure?"

Mr. BERGSTEN: Yeah. That`s sometimes put in terms of why should we bail out the Soviet Union?

LEHRER: Exactly.

Mr. BERGSTEN: You have to look at the alternatives. Suppose that we and the Western countries in general turned our back on Solidarity and what`s going on in Poland. If we did that, collapse of that economy is a very real possibility. Which means we might bail the Soviets in". They might then be in a position -- much more than they are now -- to dominate the situation.

LEHRER: But let`s say we give the government of Poland a certain amount of money. Isn`t the government of Poland going to take that United States money, and turn around and spend it in the Soviet Union?

Mr. BERGSTEN: Well, I don`t think where they spend it is really so much the issue. As mentioned already, Poland has a major hard-currency gap. Their imports from Western countries, including the United States, are running at a level that they cannot finance from their current export earnings and normal capital inflow. So what they`re really looking for is funding from Western countries to enable them to continue importing from Western countries and at least maintain some modest stability in their own economy.

LEHRER: Is it realistic to think, Mr. Bergsten, that the United States government could go to the government of Poland -- let`s assume they do what Mr. Vanous says, that they do come to the West and say, "Look, we need some money," and the government could say, "All right. Yeah. We might give you the money, but in exchange for this money, you`ve got to go along with Solidarity in this case and this case and this case and this case.`` Is that realistic?

Mr. BERGSTEN: Well, it certainly could not be done in such an overt way as that. There are ways of indirectly, and by signaling, indicating that certain steps need to take place for you to provide financial support. But that question points to the importance over the next year or so of Poland joining the International Monetary Fund because the International Monetary Fund -- as it does with so many countries -- can be a buffer between the creditors and the debtors, and be a kind of antiseptic international organization recommending changes from a purely technocratic standpoint that need to be made to put good use of the money. That would be very different in political terms from the U.S. or West Germany -- or any Western countries -- trying to impose conditions on their loans in a bilateral, or even a multilateral, sense.

LEHRER: I see. Thank you. Robin?

MacNEIL: One of Poland`s leading American creditors is the Chemical Bank of New York. Paul McCarthy is assistant secretary in the bank`s international division, with lending authority for Eastern Europe. That means you can lend money to Eastern Europe, if you want to, can you?

PAUL MCCARTHY: If the investment is right. That`s correct.

MacNEIL: Is it in the political and economic interest of the West -- the United States and the rest of the West -- to rescue Poland`s economy?

Mr. MCCARTHY: Well, I would put the question somewhat differently. I don`t think this is a unidimensional problem here -- that is, solely with respect to the West, I think Poland is an enormously important country, not only from the interest of the West in terms of economic and financial, but also security interests, and certainly it`s as equally important to its socialist partner countries -- predominantly the Soviet Union -- and their interests in Poland as well, which are security interests as well as economic. Poland is a major economy within the socialist bloc countries of Eastern Europe. And without a viable economy within the socialist bloc, that bloc would be severely damaged.

MacNEIL: Does that add up to "we should help try to rescue the Polish economy?"

Mr. MCCARTHY: We should try to assist Poland to the extent that Poland is willing to assist itself. If Poland is going to dig itself out of its economic difficulties, it has to do it largely on its own efforts, on its own achievements, on its own merits. And the Polish people and the government must cooperate together. And I think it`s very, very important for Solidarity to begin the process of working in a collaborative effort with the government to develop economic policies and programs that will be fully supported by all of the Polish people, to enable themselves to get out of the financial difficulties that they now are beset with.

MacNEIL: Is the Solidarity agitation for more and more political freedom in little increments, and perhaps a big one at this last congress, making the economic equation worse, as you view it from here?

Mr. MCCARTHY: I personally, to some extent, think it is. Over the past 13 months we have witnessed Solidarity walking, in my opinion, a very fine line. I think some of the announcements coming out of the recent congress could be interpreted as them being -- as them overstepping this particularly fine line that has existed. To the extent, for example, on the financial side that we see a major effort for the worker self-management program in all of the factories throughout the country -- which in essence represents a decentralized process of economic and financial decision making for the country, a country which is in extremely serious financial straights at this point -- I think, would be counterproductive. In my opinion, what is needed for the immediate term to overcome the enormous problems that the country finds itself faced with is for greater centralization. And therefore in my view. Solidarity has to become understanding of how serious the financial problems are. It has to be willing to work with the government, and it has to allow the government to retain centralized control over the economy until such time as a stabilization program begins to take effect.

MacNEIL: Do you find yourself -- as a kind of citizen of the Western world, on the one hand, and as a banker and financial advisor to governments, as you`ve been in the past, on the other -- ambivalent about this? On the one hand cheering Solidarity on for what it may be doing to the growth of freedom in a communist country, and on the other hand, seriously disturbed, as you`ve just said, that it may be making the task of economic recovery -- and incidentally, helping Western banks and interests recover the money that they have loaned -- more difficult?

Mr. MCCARTHY: Well, I -- yes. I am somewhat troubled and disturbed. Over the short run, as I`ve said, I am disturbed that Solidarity is taking some of the positions that it appears to be taking -- a movement toward a decentralized economic decision process at all managerial levels of the economy. While that is very much in line with the way the American economy is organized, and being an American citizen and a member of the banking sector, that`s the way we operate because it provides the proper incentive, and without proper incentive, over the longer run, one cannot achieve the most exalted results. But over the short run -- because the problems are so large -- I think that the Polish people -- the workers, the government, the party officials -- have got to somehow compromise among themselves successfully, and I don`t think, in that short run, by that compromise -- because that compromise will indeed, I think, enable them to achieve the long-term goals. And if they`re able to overcome their short-term difficulties, I think the changes that have occurred within Poland over the past 13 months will provide the foundation for a viable political and economic entity, and a major contributing party of world affairs in the future.

MacNEIL: Well, thank you. Jim?

LEHRER: Professor Wachtel, do you agree that Solidarity has won many, many things but the economy has continued to deteriorate, and in fact has made it worse?

Prof. WACHTEL: I don`t think I could disagree more with Mr., McCarthy. He sounds to me like he`s representing the Soviet position here. A more centralized economy, keep doing the same thing inefficiently, central planning, and just keeping everything worse. Now maybe that will ensure that he gets -- his bank -- gets his money back, but that may not be in the interest of democracy and freedom and economic change in Poland. The program for economic reform based on worker self-management seems to me to contain the essence of probably the best hope for the Polish economy in that, first of all, it provides incentives to the work force to work because they can see some rewards for their work. It provides for more efficiency through decentralization, which is exactly what we supposedly impose upon -- want to impose upon -- all other countries. And, it seems to me to provide the basis for the kind of institutionalized political reform in Poland that will avoid this hopscotching from crisis to crisis.

LEHRER: Mr. Bergsten, what`s your view of that?

Mr. BERGSTEN: Well, I would strongly agree with Professor Wachtel. I think one has to take a long-term view of the economic side of this crisis as well as the political side. The problems of the Polish economy are quite deep-seated, and have existed for quite a while. They have been made worse in the short term, of course, by the disruption politically that`s going on. But the Polish economy has long-term, structural, and deep-seated problems. They are only going to be improved on a lasting basis by some fundamental changes in the way that society and that economy are organized. And the kind of political liberalization Solidarity is promoting, the kind of decentralization of management of the economy it is seeking in particular, I think is essential in the long-run economic interest of that country, as well as its political interest.

LEHRER: Take that, McCarthy.

Mr. MCCARTHY: Well, again, I agree with the statements about the long-term implications of decentralized decision making and reform within the Polish economy. It certainly is essential; it certainly is moving in that direction, and over the long run, it can certainly provide the foundation - - as I mentioned before -- ? for a very viable, contributing economy, both to the East and the West. But, the problem that the Poles are facing at the moment is so substantial, so severe, that the managerial expertise at a decentralized level is not there on a sufficient basis to cope with the problem. And therefore, I think, for the next several months, or perhaps the next couple of years, there has to be a compromise within the party, the Solidarity, the church and the people themselves to be willing to forego some of the immediate gains -- the tangible gains -- that have been acquired over the past year in an effort to solve the financial and economic problems that are so large, and presented to them as of right now.

LEHRER: Mr. Vanous -- let`s give Mr. Vanous a chance-

Mr. VANOUS: What I feel is, I disagree with this. I feel that they need a reform, they might as well go ahead with it as soon as possible. I feel that what you need is to provide instantly to the people -- they need to feel that you are coming up with something new. Continued strong centralization is not going to solve the issues. I feel that centralization is appropriate, perhaps, for a very few areas of the Polish economy such as the management of the foreign trade sector, where you need to consolidate importing and exporting decisions. But in terms of the rest of the economy, I think they should proceed.

LEHRER: But what about other inconsistencies, even one Mr, McCarthy didn`t mention? On the one hand. Solidarity is agitating -- if that`s the word -- for higher food prices for farmers -- farm prices, and at the other side, they`re agitating for tower food prices for the consumer. You can`t have it both ways, can you?

Mr. BERGSTEN: Right. And when you throw in demands for a shorter work week -- which reduces the level of production and output -- you add to the inequalities in the equation. So there is some good and some bad in economic terms in the Solidarity program. I was focusing on the longer-run structural effects, but at the same time, it is true: in the near future, there has got to be a compact reached between Solidarity and the government authorities in Poland to put the economy back on track in the nearer run.

LEHRER: So you agree with Mr. McCarthy on that point?

Mr. BERGSTEN: That they have to get together quickly, or else the economy may disintegrate very, very fast.

LEHRER: Well, do you see any indication what has happened out of this Solidarity congress, that Solidarity is willing to make such a compact? We have 10 seconds.

Mr. BERGSTEN: No

LEHRER: Thank you. Robin?

MacNEIL: You only used one of the 10 seconds, [laughter] All right. Mr. Wachtel. Mr. Vanous, Mr. Bergsten, Mr. McCarthy, thank you very much. Good night, Jim.

LEHRER: Good night, Robin.

MacNEIL: That`s all for tonight. We will be back on Monday night. I`m Robert MacNeil. Good night.