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Working Paper 2020/16/ATL Working Paper 2020/16/ATL Polish Citizens in a Transformed Society: A Social Contract Perspective on Business and Ethics in Poland Iwona Kuraszko Bolöv INSEAD, [email protected] N. Craig Smith INSEAD, [email protected] When 10 million Polish workers united to form the Solidarity movement in 1980, it became the first domino to fall in a chain of events that led to the collapse of the Soviet Empire. Within Poland, Solidarity created a social contract for rebuilding Polish society with the values of justice, dignity and freedom. Yet the actual transformation that Poland underwent emphasized mainly freedom, of those three values. Leaders implemented “shock therapy” to transform the economic system into a free market economy—with scant regard to the effects on human welfare. Today, Poland is regarded as one of the success stories of the post-Soviet transformation. But many Polish workers and consumers have felt excluded from the gains in living standards. Critics complain that the values of dignity and justice were ignored in the process of bolstering Poland’s economic freedom. Illustrating this at the level of the firm are cases on a labor strike and a consumer protest that also show Polish citizens challenging the terms of the social contract under which businesses operate in Poland. The discussion concludes that, in newly established democracies, social contracts must continually evolve as the population awakens to the challenges of creating a free and inclusive society. Keywords: Social Contract Theory; Business Ethics; Poland; Solidarity; Transformation; Shock Therapy; Cultural Specificity; Tesco; M-Bank Electronic copy available at: http://ssrn.com/abstract=3553194 Working Paper is the author’s intellectual property. It is intended as a means to promote research to interested readers. Its content should not be copied or hosted on any server without written permission from [email protected] Find more INSEAD papers at https://www.insead.edu/faculty-research/research Copyright © 2020 INSEAD Polish Citizens in a Transformed Society: A Social Contract Perspective on Business and Ethics in Poland This paper examines Poland’s transformation from a communist-run society to a capitalist one through the lens of social contract theory. Its main contribution is to explore whether Poland’s economic and social transformation were in step with a social contract established with the country’s populace. While the focus is on Poland, our findings are relevant to other Central Eastern European countries and, potentially, to other regions undergoing transformation. The paper’s primary theoretical contribution is to illustrate the application of social contract theory to business ethics in a novel context while highlighting, in particular, the deep cultural specificity of social contracts—a characteristic that requires that each social contract draw upon the history, economy, politics and social norms of the constituent parties in shaping the relationship between business and society. Furthermore, we conclude, the social contract must be periodically revisited and renewed as the society matures and becomes more demanding. Using an interdisciplinary approach and multiple data sources, the article paints a portrait of modern Poland, focusing on the interchange between Polish citizens and consumers and the country’s newly created business institutions. More specifically, it identifies a social contract—part-extant and part-hypothetical—between Poles and the international and local businesses that now operate in the country. This social contract is reflective of the relationship between business and society in pre- and post- transformational Poland. 1 Poland’s transformation from a communist state in 1989 to a capitalist one today has been widely seen as a remarkable success story.1 The McKinsey report, Poland 2025: Europe’s New Growth Engine, summarized the country’s economic turnaround this way (Bogdan et al. 2015, p. 1): Twenty-five years ago, events in Poland touched off changes that swept Central and Eastern Europe, resulting in massive economic and political transformations. As the Polish economy emerged from decades of state control, industries were privatized and market-based competition was introduced, followed by painful reforms. Within a few years, Polish GDP and living standards began to rise significantly, as the country started on a growth path that has not ended. Accession to the European Union in 2004 confirmed the success of Poland’s effort and indicated a development path that was leading toward the level of Europe’s most advanced economies. According to the report issued in January 2015, the Polish economy has doubled in size over the last 25 years when measured in terms of real GDP. The growth in GDP between 1991 and 2008 was an impressive 4.6 percent per annum and continued, as Poland became the only country in the European Union not to suffer a recession following the financial crisis of 2008 (see Figure 1). The Polish economy is now the eighth largest in the EU in terms of GDP. “As a result,” the report says, “the country, long a marginal European economy, is poised to become Europe’s new growth engine” (p. 2). This growth trajectory has continued, with real GDP growth over 5% in 2018 (though a decline in the rate of GDP growth is forecast by the IMF in the period to 2024).2 1 This portrayal of Poland’s transformation as a success story has been featured prominently in various international media, including: “Europe’s unlikely star,” The Economist, 28 June, 2014 (article available online) and “The Miracle Next Door: Poland Emerges as a Central European Powerhouse,” Der Spiegel, 25 May, 2012 (article available online). 2 See: https://www.ceicdata.com/en/indicator/poland/forecast-real-gdp-growth (accessed 30 October 2019). 2 Figure 1. Change in GDP per capita in Poland 1990 - 2012 Source: www.ec.europa.eu/economy_finance/graphs/2014-10- 06_poland_success_story_en.htm Perhaps surprisingly, despite the media narrative portraying Poland as a “success story”, there are underlying questions of whether the country’s economic changes match agreed upon values of the populace and thus are consistent with a social contract that may be said to have been developed at the start of Poland’s remarkable transformation process. Central to this contract were the values extolled by the Solidarity movement of freedom, dignity and justice (Staniszkis 1984). What is the definition of a successful transformation? Must there be a high moral cost for economic transformation? Can the values of justice, dignity, and freedom, which sparked Poland’s peaceful revolution, be simultaneously integrated into a socio- economic system and adopted by business? What responsibility does business have to act consistent with the social contract? 3 The social contract for the transformation of Poland was clearly set in place by the Solidarity Movement, beginning in 1980. But where is that social contract today? “In the long run, marketization must be accompanied by democratization,” wrote Polish economist Grzegorz Kołodko in the comprehensive study From Shock to Therapy: The Political Economy of Post Socialist Transformation (2000, p. 343). “This is the most likely and most welcomed scenario. Nonetheless, a non-democratic, market-friendly regime could undertake structural reform and institutional and cultural change to a sufficient degree to achieve a transition to the market without establishing a full-fledged democracy or a civic society. This has already happened in the less-developed world, and such a scenario is quite imaginable for several former Soviet republics, especially those in Central Asia” (Kołodko 2000, p. 343). In Chodakiewicz, et al.’s (2003, p. 5) comprehensive study, Poland’s Transformation: A Work in Progress, three historians argue that “the moral and philosophical leftovers of communism have caused the greatest concern, especially since the communistic system deliberately sought to degenerate social and civic values. Although communism failed with this, its attempt had serious consequences. The need to rebuild a just society based on inalienable principles of human rights has been overshadowed by political compromise between the former communists and the liberal wing of the former opposition.” This has been key to the more recent rise of the Law and Justice party and its success in the 2015 and 2019 elections. After acknowledging the growing social need in society to emphasize dignity and justice in the economic system, the leaders addressed those issues in their vision of “just Poland” and started implementing several pro-social reforms. 4 The social spirit that transformed Poland from the previous regime was obviously a triumph of civil society, but the real challenges of implementing the transformation leave open the question: Has the social contract that was the impetus for the change been fulfilled? This is a big question, though one that we attempt to answer through a framing using social contract theory and by drawing upon analysis from leading Polish commentators, as earlier indicated. We also focus on the question more narrowly as it relates to business and to the effects of the transformation on Polish citizens as employees and consumers and thus how business has responded to the transformation. Our study examines two case studies and a variety of statistical data to explore the question. Inevitably the case studies are anecdotal, but they illustrate and lend weight to the claim that business practices in Poland today are not consistent with the social contract created at the birth of the Solidarity and these practices are, in some instances, being challenged on these grounds. In developing a new democracy, the citizens are not only supposed to co-create the system but should also know their responsibilities in the process. The cases show two groups of citizens—Tesco’s employees and mBank’s customers—who decided to take responsibility in influencing their daily lives and asserted a case for something closer to the expectations of the social contract created by Solidarity.
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