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Poland's Return to Europe: Lessons for Ukraine, Russia and the West

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This piece originally appeared in The Financial Times.

Since Poland returned to democracy 25 years ago, the country's economic and political development has been astounding. Today Poland is a prosperous, dynamic and democratic society. Yet the leaders will make the most of their visit if they understand the deeper lessons of Poland's remarkable recovery after 1989 and apply those lessons elsewhere, including vis-à-vis Ukraine and Russia.

On June 4, 1989, Poland held the first free elections in eastern Europe since the Soviet takeover of the region just after the Second World War. Those elections set Poland -- and the rest of the region -- on a path to democracy and membership in an enlarged EU. The elections themselves marked a triumph of pragmatism in the pursuit of freedom and hope over pessimism. A political agreement between the Communist government and the Solidarity opposition called for electing one-third of the lower house of parliament, the rest remaining for the time being in Communist hands. In addition, all 100 seats of a new upper chamber, the Senate, would be elected.

Poles voted peacefully to deliver an overwhelming landslide for Solidarity, which won all contested seats in the lower house and 99 of 100 seats in the Senate. The population's demands for national renewal were overwhelming. Yet the Solidarity leadership felt it had inherited the whirlwind: a massive public mandate yet a failed economy slipping rapidly to outright collapse, unpayable foreign debt, hyperinflation and even possible famine and civil war, a dark vision held by many Poles. As the dark economic humor put it at the time: "One can turn an aquarium to fish soup, but how can a fish soup be turned back into an aquarium?"

Earlier that spring of 1989, I had become an economic adviser to the Solidarity movement. I recounted to the Solidarity leadership past episodes of history in which economic collapse was successfully turned into prosperity. The German economic miracle after the Second World War was topmost in mind. Germany's economic leader of that era, Ludwig Erhard, had used market forces, deft monetary reform and massive western aid and debt relief to convert the postwar shambles of the Nazi regime into a vibrant, world-class economy based on a strong combination of market forces and social policies.

My main message to the Polish leaders was that Poland could be the next country to achieve such a recovery, not least because it was the next door neighbor of a vibrant Germany and of the European Community (later the EU). The very proximity that had been Poland's undoing in the past would now prove its benefit in a peaceful Europe. Market forces (and lots of hard work), I assured my interlocutors, would induce massive inflows of capital from Europe into Poland to rebuild a defunct, decrepit economy. At Solidarity's urgent request, I produced an overnight memo on how these principles could be put into action.

There was a nasty little problem of Poland's Soviet-era debt, which weighed heavily on the economy, budget and hopes of the people. Poland was bankrupt. I enunciated what became known in Warsaw as the "seven-postcard approach." In a speech to the Solidarity leaders, I urged Poland to send seven postcards, one to each of the Group of Seven powers, to announce that the Soviet-era debt should be henceforth expunged, as Poland needed a fresh start as a democratic, market-based economy. Germany, too, had received deep relief on Nazi-era debt and a fresh start after the Second World War.

With Mikhail Gorbachev's behind-the-scenes support and the Poles' own deft sense of compromise and national survival, the Solidarity leadership invented a wonderful compromise that the movement termed "Your President, Our Prime Minister." The Communist president Wojciech Jaruzelski would remain in power two more years while Solidarity would take the position of prime minister and the reigns of economic leadership. The brave and decent Solidarity-backed prime minister, Tadeusz Mazowiecki, confirmed his reform boldness when he told me in a private meeting on his first day in office that "I am looking for my Ludwig Erhard." He found him in a brilliant and brave economic reformer, Leszek Balcerowicz.

In 1989, Poland was a moribund economy with soaring inflation and about one-third of Germany's income per person. Now Poland is a modern, low-inflation, rapidly growing economy at more than half of Germany's income per capita. Poles undertook bold and strong reforms and the west backed Poland with timely assistance and deep debt relief. The seven-postcard approach worked, as it found support among far-sighted leaders in the U.S. and Europe.

In the early 1990s, Poland's per capita income was roughly one-fourth lower than Russia's and on par with Ukraine's. Now it is almost three times richer than Ukraine and about 15 percent above Russia's (despite that country's vast oil and gas income). Membership in Europe, market reforms and significant and timely western aid, including debt cancellation paid off magnificently.

Ukraine and, yes, Russia both could enjoy the same remarkable rise in real incomes that Poland has achieved if they each quash corruption and adopt further reforms and if the West deals with both of them as wisely as it did with Poland. In the 1990s, the U.S. was too shortsighted to help Ukraine and Russia to heal old wounds and to integrate with the world economy. The U.S. foolishly demanded that Russia repay Soviet-era debts, in time and in full -- the opposite treatment that it gave to Poland. We reap today in Russia what we sowed in the early 1990s.

Poland's inspiring development since 1989 has therefore depended on a mix of crucial ingredients: strong political and economic reforms inside the country; market and political integration with Europe and the world; national determination and hard work; and last but not least, far-sighted and timely western financial assistance. Overcoming a deep economic crisis requires a mix of strong internal reforms and vigorous and timely external support in a context of global co-operation.

Leaders should embrace these core lessons for another reason. This year is not only the 25th anniversary of Poland's democratic and economic rebirth but also the 100th anniversary of the outbreak of the First World War, the occasion when fear and confrontation triumphed over hope and co-operation. In 2014, co-operation and the economic integration of Europe with both Ukraine and Russia are the only sane course for all sides.

The writer is director of the Earth Institute and was economic adviser to Poland's Solidarity movement and its first post-Communist government in 1989
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