The Risks of Doing Business in Poland

Doing business entails certain risks. You make a big investment of money and time, and you hope that your gamble pays off. Maybe people will come to your restaurant. Maybe they will buy your product. Maybe they will contract for your services. But you can’t be sure. You’ve taken out loans on the expectation that if you build it, they will come.

Polish businessman Lech Jeziorny was willing to take those risks. He and his partner had acquired two parcels of land. The one in the middle of Krakow included an old slaughterhouse from the 19th century that was still functioning, though at a loss. They decided to move the production to a new facility they established on the outskirts of the city on their other parcel of land. And they sold the slaughterhouse to make way for an upscale mall called Galeria Kazimierz.

“It was an interesting way to combine old buildings with new architecture,” Jerziorny told me. “The facility was near the place where the management had residential apartments. So, these offices and apartments make up a very nice complex.”

But there was an entirely different risk that Jeziorny was taking, one that he didn’t even know about. Nor did he find out about this risk until he and his partner were about to bring in another investor for their modern food processing facility. “The restructuring took four years,” Jeziorny explained. “It was quite complicated for many reasons. At the end of this process we were very tired, and we needed a new investor. We finally found this investor, we established all the conditions, and then, when we established the date to sign the agreement with this investor, we were arrested.”

Arrested. On the suspicion that Jerziorny and his partner were engaged in a criminal conspiracy involving money laundering. The tax authority also also hit them with a fine of 4 million zlotys. Even worse, they were thrown in jail for nine months – without any evidence. I learned later that such detentions are not unusual in Poland. Some people spend several years in pre-trial detention.

During the time spent in jail, the business went bankrupt. “We had leased the machinery, and now everything’s gone,” Jeziorny said. “This was probably the most modern meat processing plant in Poland at the time. Everything was completely new, with the latest technology. And everything was destroyed.”

After nine months, he was released without being charged – for lack of evidence. Eventually the courts cleared the two men of all charges. “It’s difficult to talk quietly about all this, especially in English because it’s hard to describe my emotions,” he told me. “This was like an atomic bomb that fell on my life, my business life, my family, my friends, my partners.”

Jeziorny had been arrested before – during Martial Law because of his Solidarity activities. He considers it a supreme irony that he spent eight months in jail unjustly under Communism and an even longer time unjustly in the post-Communist era.

“After the end of the Communist system, many important people remained in place in state institutions, and their impact is so big,” he argues. “We probably made a mistake in not removing these people from the state institutions. We thought that, okay, now we have capitalism, so everybody will be free market people. Many crazy Communist guys with Communist mentality were the directors of tax offices, directors in the prosecutor offices, and so on. They killed many businesses and destroyed many people.”

He has helped create an organization to work on behalf of businesspeople destroyed by the state. They have 200 members and have collected 2,000 stories similar to his own.

I asked him how these stories square with the narrative of Poland’s economic success in the post-Communist era. “But imagine what kind of success we could have here without the Polish bureaucracy?” he said. “Our success would probably be 15% greater. If you are an entrepreneur in Krakow or in Poland more generally, you have to fight against bureaucracy every day. Every day you’re not thinking about how to grow your business but about how to protect your business from the bureaucracy. It takes maybe 20 and sometimes 50 percent of your energy to go against the bureaucracy. It’s crazy.”

 

The Interview

 

Do you remember where you were and what you were thinking when you heard about the fall of the Berlin Wall?

 

At that moment we were in the middle of changing everything in Poland. After the Round Table process and the free election in Poland in June 1989, we started to change the economy, the political system, and so on. The fall of the Berlin Wall in Berlin was quite surprising and very interesting, and it was a very strong signal that everything in this part of Europe was about to change as well, not only here in Poland but in East Germany and the Czech Republic and by the end of that year even in Romania. I don’t remember exactly what I was doing on that day, but I was engaged in the Polish transformation.

 

Before you became part of the Krakow Industrial Society, what were you doing prior to that?

 

I was in the democratic opposition and in the Solidarity movement. I was arrested and spent eight months in jail. I was a very small part of this great movement that changed the situation in Poland, that destroyed Communist system in Eastern Europe, and that changed the world.

 

So you were part of the movement in 1980?

 

Also before. At the end of the 1970s I was a student, and I was part of the independent Catholic movement.

 

KiK [the Club for Catholic Intelligentsia]?

 

Yes, KiK for students. It was in the Dominican Church in Krakow. The name of this society was, in Polish, Beczka. Our meetings brought together students with the fathers from the Dominican Monastery in Krakow. In 1977 you might remember a big event after a young student was killed by the pro-Communist secret service. Part of the organizing of this event was done by people from this movement in the Dominican Monastery.

In autumn 1977, I started to meet the students in Krakow. I was born in Upper Silesia, in Ticha, near Katowice. And in 1978 I became the member of the student society in this Catholic movement. Later on I was the part of the opposition group SKS and later the Young Poland movement, which was established in 1979 in Gdansk and at the end of 1979 in Krakow. I was the spokesman of the Young Poland movement in Krakow. In 1981, I started to work for Solidarity in Katowice. My friend was the president of Solidarity in Upper Silesia. This was the biggest organization in Poland, and I was the adviser. My wife was a journalist with the local Solidarity newspaper.

I was arrested on December 16, 1981, the first day of Martial Law. My wife was involved in the local Solidarity organization, and she was in the Wujek mine. She left the mine probably two or three hours before the police and the army attacked.

Afterwards, I was studying and working independently. Of course, it was not very easy to find independent work. I sold the Catholic newspaper Powściągliwość i Praca published by Michalineum, which is the part of the monastery of the Michalici. I was the regional dealer of this paper in Krakow. This was the first half of the 1980s.

 

So you studied as an economist?

 

No, I am an engineer, and my diploma is from the polytechnic in engineering. But after my studies, I became an entrepreneur and a manager, not an engineer. I was a regional chief for the Świetlik corporation. This was a unique Polish company, a cooperative established in Gdansk by Maciej Płażyński, who died in the Smolensk catastrophe. He was one of the political leaders when Mazowiecki formed a government, and he was the president of the Sejm. Before 1989, I was working in this cooperative with Donald Tusk, the current premier, and many other famous people. There were many anti-Communist people working in this organization who wanted to be independent from the official system of working. We painted in high places, like industrial alpinists. It was very interesting work.

 

Painting in high places? Outside?

 

Our job was to do the painting in high places in these construction projects, outside and sometimes also inside. And we would also take photos to show engineers the condition of the project in these high places.

 

When did the cooperative start?

 

I started to work for the cooperative in 1987. But it was established in Gdansk probably two or three years before. Just after the Martial Law period.

 

So that was your first experience in the business?

 

Yes, my first serious experience. I was the distributor of the paper, but it was a monthly, so it was only a few days of work a month. But the work at the cooperative was daily work. I was the manager and also I was the worker. Sometimes I organized contracts, and after that I was the one of the workers working on this contract.

 

So you went up to these high places?

 

Yes.

 

How long did you work there?

 

Three years. After that I was the director of the foundation of the Krakow Industrial Society, which was founded by Mirosław Dzielski, who died in September 1989 during a trip to the United States. He was very ill.

 

So what happened after you worked at the Industrial Society?

 

I was director for probably two years. After that I started my private career when I established my consulting company. During the next three or four years I was an adviser on many economic projects — restitutions, privatizations, things like that. In 1985 I started working for the National Investment Fund. It was a privatization fund covering 400 companies in Poland that consisted of 15 national investment funds managed by private companies established by Manhattan banks. I was working for the company established by Chase Manhattan Bank and Gemina, an Italian investment company. It was called Chase-Gemina Poland. Then, after an Irish bank bought shares, the name of this company was changed to AIB Fund Management. For the next four years, I was investment director in this company responsible for selling these companies to private investors.

After that I did a management buyout of two companies in Krakow. I became a completely private entrepreneur manager and co-owner of these companies.

 

Which companies were they?

 

It was a food processing plant in Krakow located in an old slaughterhouse in the southern part of Krakow. This old slaughterhouse was established in the 19th century. At that time, of course, it was in the suburbs of Krakow, but now it is in the center of Krakow, about one and a half kilometers from the main square. It was a very interesting project because we moved production to a new facility in the suburbs of Krakow and re-developed the old slaughterhouse. Then we sold the site to a company called DDC, which established there the Galeria Kazimerz, a commercial gallery with very interesting art. It was an interesting way to combine old buildings with new architecture. The facility was near the place where the management had residential apartments. So, these offices and apartments make up a very nice complex.

 

Kazimierz is the old Jewish section of Krakow.

 

Yes, this place is near Kazimierz district, not exactly on this place but very near.

 

You said you did two companies. The second one is…?

 

The second one is an investment company.

 

And you still work with these two companies today?

 

No. After we sold the old slaughterhouse to make this very nice development Galeria Kazimierz, something happened that I still don’t understand. My two partners and I were arrested. I can show you the story as described in The Financial Times two or three years ago. It’s a dramatic story. I was jailed for nine months.

 

Nine months?

 

And our business went bankrupt during this time. It was a completely crazy period because of the prosecutor… Here’s the original photo from the Financial Times.

 

The headline is “A Legal Battle between Two Polish Entrepreneurs.”

 

Between me and my partner. This is Mr. Kluska. Do you know him? He’s the founder of Optimos Company. He was also arrested. And this picture shows part of the Galeria Kazimierz, which is really well renovated.

 

So you were charged with running a criminal enterprise?

 

Yes.

 

They put you in jail for nine months while they were looking for evidence. How could they put you in jail for nine months while they were looking for evidence? They’re supposed to have evidence before they put you in jail.

 

Yes. The Communist regime jailed me for eight months, but new Poland jailed me for nine months. It’s crazy, but it’s true.

 

And then they dropped all the charges against you at the end? In the United States, if that happens, then a person can file a civil suit for wrongful imprisonment.

 

It’s a very long story, but it’s difficult. One of the very important problems in Poland is the relationship between business and bureaucracy. The bureaucracy is protected by fiscal tax officers, the prosecutor’s offices, and part of the secret service, especially old officers from the Communist secret services. This is a very, very big problem because many Polish entrepreneurs have been destroyed by the state structures. I am one of them, along with my colleague Paweł Rej.

 

So you were not able to sue for damages?

 

The trial is taking place now. We are in court, but probably it will take the next few years. It is very complicated, and everything in court in Poland takes years and years. And it is very difficult to win something from the state. If the state would like to destroy you, it’s no problem. If you would like to make a claim against the state, it takes years. You must pay for lawyers, for everything. And you have to fight against the people who work everyday in these institutions and are paid by state. I am paid by myself.

 

Why do you think they did this?

 

Me, my friends, and many others have tried to figure out why. There are a couple different scenarios. One is that someone wanted to take over my business. A second is that someone was crazy and completely stupid. A third is a combination of the first two.

 

While you were in jail, your business went bankrupt? This was the slaughterhouse that you had relocated to the suburbs?

 

The restructuring took four years. It was quite complicated for many reasons. At the end of this process we were very tired, and we needed a new investor. We finally found this investor, we established all the conditions, and then, when we established the date to sign the agreement with this investor, we were arrested. They knew that we planned to sign an agreement with this investor, so that’s probably why we were arrested on that day.

Unfortunately, everything was destroyed. This was probably the most modern meat processing plant in Poland at the time. Everything was completely new, with the latest technology. And everything was destroyed.

 

That’s a huge investment of capital.

 

Yes, it was a ten million euro investment. And everything was destroyed by the state.

 

The facility located in the suburbs doesn’t exist any longer?

 

No. We had leased the machinery, and now everything’s gone. There’s nothing there now. It’s difficult to talk quietly about all this, especially in English because it’s hard to describe my emotions. This was like an atomic bomb that fell on my life, my business life, my family, my friends, my partners.

 

What happened to your second business?

 

It was connected because there was a very close relationship between the two companies. We had to sell the second company for a very small price because we were in jail. Now we have nothing from these two businesses.

 

When were you released from jail?

 

We were arrested in 2003 for nine months. We got out in June 2004.

 

This article appeared six years later.

 

Yes.

 

What did you do after you got out of jail?

 

I had to go back to my advisor company. For many years I was again an advisor and sometimes a manager for other people’s companies. Now in June I started working for a big company as a manager. I’m satisfied because it’s interesting work. But they are not my businesses.

 

Would you consider doing it again? Investing in a business?

 

No, it’s probably too late. After this experience, many things changed during this time, and now it’s too late to organize something by myself. But I’d like to be more active. I’m the co-organizer of the movement of businessmen destroyed by the state. We organized our movement one year ago to publish our dramatic stories and to connect politicians to this side of economics, which sometimes is not very popular.

 

How many people are part of this group?

 

We have about 200 members. But in our computers we have 2,000 cases. And these are not all the cases, maybe only 10% or 20%.

 

When did these cases start? In 1990?

 

Yes, the first problems with Polish bureaucracy began in the middle of 1990s. Of course, I didn’t see this problem. Roman Kluska was the first very famous guy to be arrested and destroyed by the state. He was one from the most talented Polish businessmen and entrepreneurs. He established a computer factory, Optimus, in a small town in the south of Poland, a hundred kilometers from Krakow in New Sacz. Optimus had good relations with Microsoft and with Lockheed Martin. They planned to make a joint venture, and now everything is gone.

 

Outside of Poland, everybody says that Poland is a success story, economically and also for entrepreneurs.

 

Yes. But imagine what kind of success we could have here without the Polish bureaucracy? Our success would probably be 15% greater. If you are an entrepreneur in Krakow or in Poland more generally, you have to fight against bureaucracy every day. Every day you’re not thinking about how to grow your business but about how to protect your business from the bureaucracy. It takes maybe 20 and sometimes 50 percent of your energy to go against the bureaucracy. It’s crazy.

 

Most business people complain about taxes and about state regulation. But most of them don’t worry about being thrown in jail.

 

Yes, but if you talk with Polish businessmen, they very often have experiences with state systems, structures, institutions. Of course, they’re not as dramatic as my experience. But they’ve had to fight against the tax offices or another prosecutor office. Of course, they don’t speak about it very often. But if you have more time and more contacts, you can meet many people who have experienced this crazy face of Polish capitalism.

 

Is there corruption involved? In other words, do the bureaucrats ask for bribes?

 

Yes, of course. After the end of the Communist system, many important people remained in place in state institutions, and their impact is so big. We probably made a mistake in not removing these people from the state institutions. We thought that, okay, now we have capitalism, so everybody will be free market people. Many crazy Communist guys with Communist mentality were the directors of tax offices, directors in the prosecutor offices, and so on. They killed many businesses and destroyed many people.

 

You said you have 2,000 stories in your database. Are there other dramatic stories you can tell me?

 

Yes. We had a great meeting one year ago in May. More than 1,000 people came to the Palac Kultury in Warsaw, the Congress Hall.

 

And they all told their stories?

 

Yes, yes. We have very good contacts with this TV station, Polsat. Each Sunday they broadcast one dramatic case. I can’t watch these programs because it’s too painful.

 

You’ve told me two stories, Mr. Kluska’s and your story. Is there another story that is particularly terrible?

 

I can give you the contact to our spokesman, who can tell many of these stories.

 

Yes, I would be interested. Has there been any change as a result of the media coverage or the TV program?

 

Not really. Everyday we still have new cases, though maybe not so dramatic as mine. New people are always calling up and asking for help.

 

And are there any politicians who are speaking up?

 

Many politicians say that they would like to help us, but it’s just blah blah blah. Nothing happens in parliament. This Polish law is crazy, because many paragraphs are not logical. Some of these paragraphs contradict each other. We don’t know which paragraph to follow.

 

Is there anything you can do at the level of the European Union?

 

Yes, of course. I’m enthusiastic about the European Union. But Polish bureaucracy often adopts the European requirements and applies them not at 100% but at 150%! This is crazy because 100% is okay but 150% is completely against Polish businessmen, entrepreneurs, and Polish people. This 150% is fine for bureaucracy not for business.

 

You said that one of the things that should have been done back in 1990 is to have changed the bureaucracy. Were there other things that should have been done differently with economic reform? Either with privatization or macroeconomic reform? Or were you generally happy with the changes, except for the bureaucracy?

 

The general direction was absolutely okay. But many things were changed in 1993 when the post-Communists destroyed the post-Solidarity government and established a new government. This was a critical moment in recent Polish history. The three or four years that followed were very bad for the Polish economy. Many Solidarity people, people with modern mentalities, were replaced by old Communist clerks.

 

And did they change laws, as well, in 1993?

 

Yes, of course. Law and procedures. Here’s the mystery. If good people are running a crazy system, that’s fine. But if bad people are in charge of a good system, they can destroy everything.

 

Business people don’t need help from the state. We only need the state to be neutral, normal. Only this.

 

What do you think is possible now? There’s a different government structure now with Civic Platform and a non-Communist opposition led by Jaroslaw Kaczynski. What do you think is possible in terms of changing the environment?

 

The internal political battle is not between the post-Communists and Solidarity. It’s a completely different battle line. But I don’t believe that the Polish political situation can be much improved because we have two big parties with very strong leaders. But they’re not strong leaders because they have charisma or great personal skills. They simply have a strong legal position. And their impact on democracy in Poland is too large. Donald Tusk and Jaroslaw Kaczynski are not guys who can give Poland good ideas or a vision of the future.

 

Are there any political parties or movements that you think can provide this vision?

 

Maybe yes, but many people are frustrated with the parties. They don’t want to belong to parties. They don’t believe that anything can be changed. See how many young people have left Poland!

 

Two million.

 

Yes, and these are probably two million dynamic people, because it takes great energy to leave your home, leave your country.

 

So politically, what do you think will happen? You sound relatively pessimistic, but do you have any optimism about anything in politics?

 

Well, people in Poland have been many times in much worse situations and made something good come of it. We remember 1979 when the Pope visited Poland and 1980 when Solidarity was established. There will be growth here, though maybe not as good as we wish it would be. Possibilities exist here, and progress will be made. But given Polish history, given the history of Solidarity, we could do this much quicker, much better, and in a much better social climate. But right now everything is about fighting – over Smolensk, between PO and PiS, and so on.

 

You’ve talked about the experiences of fighting against the Polish bureaucracy. But what about foreign investors? Do they also experience the same problems?

 

Some of them, yes. But the Polish bureaucracy is afraid of foreign investors. They prefer to destroy local business, as my business was. It’s much easier to destroy the businesses of local people.

 

Did you get support from people in Krakow?

 

From my friends, yes, absolutely. And from the media, absolutely yes. But from bureaucracy, no.

 

And it was the local bureaucracy, or was it Warsaw bureaucracy?

 

Both. The action against us was decided here at the level of the vice ministry of finance. After many years I learned this from documents.

 

And which government was it in 2003?

 

Post-communist, of course: Leszek Miller’s government.

 

When you think back to what your perspective was in 1990 when we last talked, how much has changed in the way you look at the world since that time?

 

Of course in 1989, when we were first in contact, we saw everything in the light of post-Communist problems, the partition of the world into Communist and capitalist. Now, we have only two Communist countries in the world, North Korea and Cuba. So, Communism exists mostly in the minds of people. But capitalism, I now see, has many faces. It has many particular problems that have to be solved. Many years ago, we did not see these problems as strongly as we do now.

Of course, we should work together to try to prepare the best solutions, and I’m very happy that here in Europe we have the European Union. I like Europe. For my last vacation, I traveled 5,000 kilometers through Italy, Austria, France, Switzerland. It’s wonderful that we can go everywhere without passports. Twenty years ago, I didn’t expect that this would be possible, so this is a great success.

But probably the central point of the world is slowly moving from Europe to Asia, from the United States to China. In the next few years, Europe will be getting older, older, and older – a nice place but without new ideas or new energy for development. The center of dynamism will be Asia: Indonesia, India, maybe China, but not here.

Of course, I am very frustrated about my own case. But I would like to underline that I see the Polish situation not only through my personal experience. I do see that we have made valid progress. Poland is a completely different country from the one we had 20 years ago. We are part of the European community, and this is wonderful to see.

 

When you look back to 1989 and everything that has changed or not changed in Poland from 1989 until today, how would you evaluate that on a scale of one to ten, one being most dissatisfied, ten being most satisfied?

 

This is probably a discussion for the next few hours! But if I had to make a choice, generally speaking, I’d say between six and seven, maybe 6.5.

 

Same period of time and the same scale: but your own personal life?

 

This trauma has had too big of an influence on my choice. Probably it would be better if I could make this choice without the traumatic experience, but that’s not possible. I think I can say the same number, maybe six. Or 6.5. I’ve had bad experiences, many days, hours, months, years lost. But still I have the same family. I have three children. My oldest daughter spent four years in China. She speaks fluent Chinese. My next daughter spent two years in the Middle East. The world is now open for Polish young people. So 6.5.

 

Looking into the near future, the next or three years, what do you expect the prospects for Poland to be on a scale of one to ten, one being most pessimistic, ten most optimistic?

 

I think five, because it’s a balance between pessimistic and optimistic: not very bad, not very good. Average.

 

Warsaw, August 12, 2013

 

Interview (1990)

 

The Krakow Industrial Society was founded by Miroslaw Dzielski in 1985 and officially registered in 1987. A philosopher by training, Dzielski wanted to create a center for fostering the free market ethic that could, for instance, serve as a business school. Several of the people involved early on in the project are now in the Mazowiecki government, including the Minister and Deputy Minister of Industry (Syryczyk and Kania) and the director of the government’s press office (Wozniakowski). According to its brochure, “The KIS works toward transforming Krakow into a European center for tourism and clean industry…it propagates free enterprise and political activity based on Christian values of individual freedom and responsibility.” KIS has worked on the notion of free trade zones and industrial parks. In 1989, it succeeded in having a Chamber of Commerce registered in Krakow. It makes no bones about the fact that it is “center-right.”

I concentrated my discussion with Lech Jerziorny on specific economic and political questions. First, privatization. According to Jerziorny, the government proposal is better than the alternative proposal but he still doesn’t like it very much. He thinks that Lis’s plan to establish a stock exchange and then market mechanisms is backward. Jerziorny suggested regional plenipotentiaries who would be responsible for regional privatization. Every factory and firm which could be sold should then be sold. The inclusion of akcjonariat pracownicze was, to his mind, a bad idea; there should be no barriers to foreign capital–even if this meant selling the firms for low prices. The government should structure its policy to the businessmen, because only businessmen are productive: not citizens, not workers. Businessmen should therefore decide whether particular firms should be privatized; not the government.

What did he see as the eventual relationship between the government and the union? Fortunately, he said, the unions in Poland were not that strong, not as strong as those in Sweden and Germany. Solidarity can count on only 2 million members, OPZZ on 1 million. Therefore, the British or, better, the U.S. model could be achieved. Also, Solidarity has thus far supported the government. The focus of any such labor-government partnership should be on growth, not wages.

And the government’s role in the economy? No, they were not as radical as Korwin-Mikke. Without government regulation, the economy would be chaotic, a jungle. Eventually, he thought the Polish government could play less of a role in the economy but at the moment it was critical. In the meantime, insurance companies for example should be privatized but not all schools. He talked about following the South Korean or Taiwanese models. I asked him about the current unrest in South Korea and the tradition of authoritarian governments in those countries–should Poland follow that example? Those countries, he replied, did not have the experience of centralized planning and totalitarianism–Poles would therefore be able to proceed without labor radicalism or political authoritarianism.