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The economies of Central and Eastern Europe are in the midst of an historic transition from central planning and state ownership to market driven private sector development. This transition requires comprehensive changes in the "rules of the game" – i.e. the legal framework for economic activity. Markets presuppose a set of property rights and a system of laws or customs that enable the exchange of those rights. The legal framework in a market economy has at a minimum three basic functions:

  1. to define the universe of property rights in the system,
  2. to set the rules for the entry and exit of actors into and out of productive activities, and
  3. to set the rules of market exchange.

Each of these three functions typically involves numerous areas of law. Property rights are defined in practice in most market economies by a wide array of laws regulating the ownership and use of real, personal, and intangible property, as well as shares in going concerns. Company, foreign investment, and bankruptcy laws are among the subset of laws that govern the entry and exit of actors into and out of productive activities. General rules of market exchange govern contract and competition law, while more detailed laws and regulations may govern more specific rules of market exchange in particular sectors.

This paper analyzes the evolving legal framework for private sector development in Poland using this general classification. Poland has a rich legal tradition dating from pre-socialist times. This tradition, suppressed but not eliminated during its forty years of socialism, is being revised as the country moves toward a private market economy. The current legal framework in Poland closely follows other continental jurisdictions, particularly the French system, and has a clear and reasonable internal logic. While many of the laws are old, most are flexible enough to permit a wide range of modern market oriented activity. The 1964 Civil Code, modelled closely after the French Napoleonic Code, lays out underlying property and contract rights. Although adopted under the socialist regime, the Civil Code was drafted by law professors and, after being recently purged of socialist rhetoric, the Code is suitable for a market economy. Recent legislation, including the 1990 Antimonopoly Law and the recently adopted Securities and Foreign Investment Laws, appears to be quite well designed for private sector development. Moreover, Parliament (the "Sejm") recently adopted a new personal income tax, and a new value-added tax law is being considered and probably will be adopted in 1992. The most problematic area is property law, which is still, in the words of one Polish legal practitioner, a "jungle."

Although the legal structure is generally satisfactory in most areas, practice remains uncertain in all areas. The generality of the laws leaves wide discretion for administrators and courts, and a body of cases and practice to further define the rules of the game has not yet developed. Although the courts are generally honest and are used by the population, they have little experience in economic matters. Judges are not well paid, and the best lawyers have a strong incentive to go into private practice. The wide discretion and general lack of experience and competence of judges create legal uncertainty that could hamper private sector development. The answer is not a change in the law, however, but a building of precedent and competence through training and dissemination of information.


International Law | Law