- The Washington Times - Thursday, August 8, 2002

SZCZECIN, Poland — Shipyard Stocznia Szczecinska SA, despite its success in shedding itself of the legacy of communist central planning and winning contracts around the world, has fallen victim to the perils of privatization.
Amid accusations of corruption at the top levels of management, the company declared bankruptcy in June. It had overextended itself before bad economic times hit.
Since then, workers have marched regularly through the streets of this Baltic sea city demanding that the government help them get their jobs back.
They are a constant reminder of the problems facing the year-old government of Prime Minister Leszek Miller, which faces rising discontent nationwide with unemployment running at 17.4 percent.
"It's a tragedy for us," said Henryk Radziwold, a 47-year-old shipyard worker marching on the governor's house in Szczecin. "We were told we were working in one of Poland's best companies and, all of a sudden, we are out on a dole. How come?"
Analysts see the shipyard as a test of whether Mr. Miller will push forward with free-market reforms needed to prepare Poland for European Union membership in 2004 or step in to halt job loss.
"If [restructuring] does not happen, the unemployment rate will not grow in the short term, but there will be no decline in mid- and long-term unemployment because we will always have to carry the burden of huge ineffective companies," said Krzysztof Rybinski, chief economist at BPH-PBK bank in Warsaw.
He added: "Szczecin can serve as a litmus test for the philosophy of the government in approaching economic problems in a time of economic slowdown."
After growing at an average of 5 percent each year for the second half of the 1990s, the Polish economy stalled, growing only 1 percent last year. The world economic slowdown and a strong zloty have left exports which previously powered growth less profitable.
Many industries, like the steel mills in Katowice and Krakow and the coal mines in Silesia, have been calling for increased government subsidies as they start to struggle.
As the economy has faltered, Mr. Miller's coalition popularity ratings have dropped from 40 percent just after his election in September to 29 percent today.
For Poland to compete in the future, Mr. Miller has to be prepared to forego the short-term political gain bailouts may bring and concentrate on helping new businesses, said Krzysztof Dzierzawski, head of the Adam Smith Research Center, an independent Warsaw economic institution.
"Small companies are dynamic, eager to take risks, while the big ones live on in one way or another on government funds," Mr. Dzierzawski said. "We need a change of mentality in the government."
Under communism, the Baltic shipyards of Gdynia, Gdansk and Szczecin were central to Poland's economy, catering to Soviet needs and bringing in hard currency from Western countries. But all were dependent on government support.
When the Szczecin shipyard was privatized in 1993, the Gdansk shipyard the birthplace of the Solidarity trade union, which helped bring an end to communism in Poland was already limping toward bankruptcy, which followed four years later. Poland's largest shipyard, Stocznia Gdynia, which took over the Gdansk yard, came out of the red only after its 1997 privatization.
But Szczecin quickly became a success story within two years boasting orders from EU countries, South Africa and Chile for 60 vessels worth $1.7 billion. Employing nearly 7,700 workers in 1995, it showed steady growth of productivity.
The managers who guided the initial success, however, took things too far. They signed contracts for ships too complicated to build and expanded beyond their means, leading to costly delays.
Now prosecutors say the principals were also siphoning money from profits for their own private venture.
Former shipyard President Krzysztof Piotrowski, the man credited with successfully guiding the shipyard through privatization, and four board members have been charged with causing $16.8 million in damage to the company. All deny wrongdoing. They face prison terms of up to 10 years if convicted.
The shipyard halted work in April after it could no longer pay suppliers, then filed for bankruptcy in June after creditor banks refused to forgive the bulk of its debt. The failure of negotiations with creditors caused the government, which holds a 10 percent stake in the company, to drop its plan to take over the shipyard to save it from bankruptcy.
Experts estimate that if the shipyard is not rescued, it could affect 55,000 workers nationwide in related industries, such as those at the Hipolit Cegielski ship engine factory in Poznan, and some 700 smaller firms.
Union activists from dozens of companies across Poland, which also fear layoffs and bankruptcy, have expressed support for Szczecin workers and offered to join forces. They plan joint protests to pressure the government for help.

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