WASHINGTON — When Harvard University economist Jeffrey Sachs visited Poland recently, he found an economy straight out of "Alice in Wonderland."
Because air travel is heavily subsidized by the government, a 180-mile plane ride from Warsaw to Gdansk cost the equivalent of $2.90. A fading post card cost a quarter of a cent because the state stationery store had not thought to keep prices current.
As an adviser to the new Solidarity-run government, which is trying to move Poland back through the Communist looking glass and toward a free-market economy, Sachs hardly knows where to begin.
He and most other outsiders prescribe nothing less than the kind of off-with-their-heads solution that the Queen of Hearts would have ordered--dismantling Poland's economy and building a new one from scratch.
Must Recraft Industry
The pricing system must be reformed, most economists believe, so that prices reflect supply and demand. The agricultural sector must be uprooted so that the country can feed itself. Industry must be recrafted without the heavy subsidies that have kept inefficient factories alive. The Poles must begin to build such basic economic fixtures as a stock market, banks and other credit facilities.
Poland's new government on Friday announced just such a program, designed to quickly begin conversion to a market economy by Dec. 31. Warsaw said it hopes to win approval of its plan by late November by the 152-country International Monetary Fund, in time for Western nations to begin new loans and debt-relief programs in early December.
"What we must do is a quick transformation of the present economic system into a market system," Finance Minister Leszek Balcerowicz told a news conference in Warsaw. "We have a great and unrepeatable chance" to adopt "a system whose effectiveness is proven all over the world. But we have to do it in a very difficult economic situation."
During the transition, economists acknowledge, Poland will have to endure extraordinary trauma--hyperinflation, deep recession, conspicuous shortages and a serious erosion of living standards--as it moves in fits and starts toward a new economic order. The political pressure will be enormous.
"People are going to have to suffer, and they have to have faith that short-term decreases in living standards will bring longer-term gains," said Charles Movit, an economist at PlanEcon, a consulting firm that specializes in Eastern Europe. "The question in Poland is, are people going to accept Solidarity's word for it?"
Poland is not alone at the brink of the free-market abyss. Other Eastern Bloc countries--including the Soviet Union--have either started down a similar path or at least considered it.
The Soviet economy, the oldest and most rigid among the Communist states, is in many ways the worst off, with extreme inflation in a few already private sectors and severe shortages of food and other goods. In the face of strikes and ethnic rivalries, President Mikhail S. Gorbachev has postponed liberalization of prices indefinitely.
Czechoslovakia is not far behind but the system there has been made more workable by an easing earlier of some restraints. Hungary, which began its shift years ago, is far ahead of other Eastern Bloc states. East Germany has yet to begin.
"There really is no blueprint," Movit said. "No one has ever done what they are trying to do."
Poland has settled one issue by forgoing gradualism in favor of what is known as the Big Bang approach--an all-at-once conversion to a free-market economy.
"If you decontrol only some prices, you sometimes make the situation worse, not better," explained Brookings Institution economist Robert Z. Lawrence.
Lawrence cites the example of China, which removed controls on agriculture but neglected to decontrol consumer goods as well. As a result, when farmers came to the cities to buy goods, they cleaned out the stores and drove urban prices up.
But a sudden transformation will also would pose difficulties. of its own. For one thing, the kinds of steps Poland plans--must take to make the switch--such as devaluing its currency and cutting back its government subsidies--are almost certain to intensify inflation and worsen the current economic slump.
"Our biggest problem is how to adjust so that at the same time our domestic situation doesn't deteriorate," Balcerowicz said during the recent International Monetary Fund meeting in Washington.
Many economists also fear that giving private interests control of industries and holding wages down may not be possible for a socialist government.
Shift May Be Impossible
University of Maryland Prof. Bartlomiej Kaminski, writing in the Financial Times, said that he fears that industry has become so concentrated that it may be impossible to shift to the kind of competition traditionally expected from a "private sector."