The legal framework for private sector development in a transitional economy : the case of Poland

The economies of Central and Eastern Europe are in the midst of a historic transition from central planning and state ownership to development of a market-driven private sector. This transition requires comprehensive changes in"rules of the game"- including the legal framework for economic activity. A market economy presupposes a set of property rights and a system of laws or customs that allow the exchange of those rights. The legal framework in a market economy has at least three basic functions: defining the universe of property rights; setting the rules for entry into and exit from productive activities; and setting the rules of market exchange. These legal tasks are accomplished by areas of law such as: company, foreign investment, bankruptcy, contract and competition law. Poland has a rich legal tradition dating from pre-socialist times, which was suppressed but not eliminated during its forty years of socialism. This tradition is being revised as the country moves toward a private market economy. The current legal framework in Poland closely follows other continental jurisdictions and has a clear and reasonable internal logic. Many of the laws are old, but most are flexible enough to permit a wide range of modern, market-oriented activity. Property law, however, remains a"jungle". The wide discretion and general lack of precedent create tremendous legal uncertainty that is sure to hamper private sector development.