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Poland - Defense Industry Under Communism

One of the most important tasks facing the reborn state was to quickly provide the armed forces with modern military equipment, on par to that of Germany and Russia. The decision was then made to build the Central Industrial District (COP), which became the location for many defense factories. After the end of World War II, the geopolitical state of affairs radically changed.

After World War II, Poland lost its sovereignty and found itself within the sphere of influence of the Soviet Union. Poland was organized in accordance with Soviet notions. This situation had repercussions for the Polish defense industry, which started to produce exclusively for the needs of the members of the Warsaw Pact. In the 1950's, at the urging of the Soviet Union, Poland undertook tremendous efforts to establish its own defense industry practically from the ground up. Utilizing Soviet deliveries of equipment and licenses, production capacities were created that corresponded with the tasks emanating from the military doctrine of that time. The industrialization of Poland guaranteed a relatively stable basis for the defense industry.

The arms race led to a paradoxical development in this sector of the economy. In 1986-88, production for the needs of the arms industry in Poland involved 312 factories, of which as many as 116 had the status of Defense Industry Enterprises.

The Polish defense industry continued to employ substantial resources for the development of its capacities until the beginning of the 1980's with a view to needs in the event of a crisis and the Warsaw Pact provisions for arms production. A decision was made, for example, on the production of the T-72 tank and its capacity at the cost of huge investments in coordination with the Soviet Union at the level of the old top political command. The almost total fixation of important arms enterprises on the production of arms was a primary cause of the problems in a conversion of production. The large capacities of the Polish defense industry could never be totally utilized from an economic point of view and in the case of export receipts one must always see Poland's subsantial outlays for the defense industry.

Under the communist system, the Ministry of National Defense ran nineteen manufacturing and repair plants, but about eighty plants were designated as defense industry enterprises under branches of the Ministry of Industry. In the late 1980s, the largest military goods producers were the Stalowa Wola Steel Works, the Kasprzak Radio Works, the Krasnik Ball-Bearing Plant, the Wifama Textile Machinery Combine, the Stomil Tire Plant, the Polish Aviation Combine, the Pronit firm, the Northern and Wisla shipyards in Gdansk, the Lucznik Works, the Starachowice Truck Factory, the Polish Optical Works, the Bumar-Labedy Engineering Equipment Combine, and the Olkusz Enamel Plant. In most cases, over 85 percent of a plant's production went to nondefense customers; the shipyards, the Bumar-Labedy combine, and the Stalowa Wola Steel Works were among the few producers whose output went mostly to the military.

In the 1980's, the 82 status enterprises together with more than 250 cooperating enterprises of various branches produced more than 90 percent of the products for national defense (armament, military technical equipment, and material for the rear). In the individual enterprises, the share of military production the overall value of production ranged from 1 to 86 percent. The rest was made up of products for the civilian sector that were technically similar to the produced special output (construction equipment and machinery, trucks and special vehicles, radio and television sets, farm machinery, locomotives, light aircraft, helicopters, and so forth).

Parts of the Polish defense industry have traditionally had a large share of civilian output. In 1989, the output of the enterprises that produce for the armed forces made up about 8 percent of all Polish industrial products. Only 3 percent of that went for defense products. Overall about 60 percent of the capacity was used for civilian production.

The Polish defense industry was never set up to cover all the demands of the armed forces with all kinds of arms and equipment. And the range of produced products thereby declined. Poland did not cope with the pace of the arms race, especially in regard to the research and development of military equipment. They had to stop independent production of combat aircraft and missiles. Heretofore about 25 percent of the equipment and armament of the Polish Armed Forces was imported.

In 1988 military goods producers employed about 260,000 people and accounted for about 3 percent of total output of enterprises under the Ministry of Industry. At the same time, over 6 percent of Poland's total exports were military products. Of military output, 49 percent went to the Polish military, 46 percent was exported, and 5 percent went to the ministries of justice and internal affairs. By 1992 military goods had dropped from 3 percent to 1 percent of total industrial output.

Polish military industries began planning for conversion to civilian production in 1987, when the Warsaw Pact was developing its new defensive posture. Some twenty of the eighty designated defense industry enterprises were considered for closure or conversion to civilian functions. Meanwhile, all defense industries made long-term plans for greatly reduced orders between 1991 and 1995. By 1990 military contracts had dropped by 30 to 80 percent, depending on the plant. Spending on weaponry had dropped by 84 percent. These reductions in demand led to unemployment and unused industrial capacity.

Defense industries also lost the privileged position they had enjoyed in the communist economy. Gone in 1990 were supply priority, low interest credit, state subsidies, and tax exemptions. Industry pessimism increased in 1990 and 1991 when military planners considered replacing Soviet- and Polish-made equipment with Western equipment.

In the Warsaw Pact decades, Polish production of sophisticated guidance and communications equipment was generally discouraged. As a result, in 1990 Polish industry was unable to supply the armed forces with modern avionics, electronics, and guidance systems that would make up some of the ground lost by relying on Soviet technology. The greatest manufacturing capabilities were in airframe design, small weapons design, and ammunition manufacturing.

A top procurement priority was electronic friend-or-foe aircraft identification units to upgrade the primitive air defense system. In the late 1980s, the Soviet Union had refused to complete a contract to supply such equipment--a fortunate development in light of ensuing changes in Polish threat perception and the advantages design familiarity would have given Russian attack planes. In 1992 Polish planners were considering both domestic design of an identification system and coproduction with a Western firm.

The Bumar-Labedy combine manufactured the T-72 tank by license with the Soviet Union, using Polish manufacturing technology. Until 1988 a seller of tanks to many countries of the world, Bumar-Labedy suffered from reduced world and domestic demand, and by 1989 its plants were working at half capacity. Like many other defense-oriented heavy industries, Bumar-Labedy found conversion to civilian production difficult. Meanwhile, the firm's financial condition deteriorated because of the high cost of maintaining a spare-parts inventory and serious payment lapses by the Ministry of National Defense.

Prior to 1989 (since the collapse of communism), the Polish defense industry benefited from many advantages. Companies manufacturing for the defense sector were given absolute priority in the acquisition of raw materials, technology and preferential credits. Also, they were exempt from paying taxes. Now faced with sharply reduced government subsidies, outdated technology and an over employed work force, defense firms in Poland struggle to survive. After 1989, three main factors negatively affected the long-term prospects for weapons production. The first was the collapse of the Warsaw Pact market, which accounted for 80-90 percent of defense sector output. The second was the advent of the new market economy. The third was the shrinking world arms markets, particularly for the generally low-technology weapons that were produced in Poland. In addition, the number of special orders written by the Ministry of Defense has been seriously reduced. The Polish defense industry, however, still looked to the government for massive assistance. The defense industry believes that, if their products are made to be compatible with NATO standards, they could again become competitive, particularly if quality remains high and the price of the finished product remains low.

By the end of the Cold War the Polish defense industry had 82 producing enterprises with the legal status of an enterprise of the defense industry along with the associated preferences and restrictions. In the view of Polish insiders, the defense industry was still a flourishing branch of industry in 1989. The Warsaw Pact ordered tanks, armored personnel carriers, radio stations, and other military equipment. There were dependable "rules of the game" and a precisely determined production potential had to kept ready at all times for a possible war. The state bore the costs for this "readiness for war."

Polish Defense Industry Conversion

Conversion of defense industry plants to civilian production faced serious obstacles. Deep cuts in the defense budget left little money for a centrally administered program or for the massive investment required to convert heavy industry. Because long-range military needs remained undefined in 1992, the degree of conversion would require guesswork. Finally, some plants simply could not be converted at any reasonable cost.

In 1992 the Ministry of Industry proposed a program to restructure the defense industry. The program would create three classes of linked holding companies, classified according to the degree of competition in which they engaged. One group, including producers of munitions and electronics, would be fully controlled by the State Treasury. The second group, including producers of aircraft, armored vehicles, and the Northern Shipyard at Gdansk, would have the State Treasury as controlling shareholder. The third group, including private firms supplying specialized production, would operate as market-economy enterprises. This structure was designed to focus production on critical military items and efficiently convert remaining capacity to free-market production.

By 1992 budgetary uncertainty and the high cost of Western equipment caused planners to rely more on domestic production of high-technology equipment and on joint production projects between Polish and Western firms. Projects considered in 1992 included an improved T-72 tank, new armored combat vehicles, a new ground attack helicopter, and a light attack aircraft. Many new products were suggested to replace Soviet equipment. Among the new products developed by the Polish industry were the I-22 Iryda combat training jet, the first such airplane completely designed in Poland, and the PW light military vehicle. In its testing stage, the I-22 Iryda jet trainer was evaluated as a very well-made airplane lacking a first-class engine. In 1992 Polish manufacturers sought joint ventures with Western firms to supply appropriate Western components to upgrade the Iryda and the PW.