Restitution in Poland – costs and obligations after 25 years of democratic state’s creation

Magdalena Zaleczna

Introduction

• Property rights reflect the county’s economic system and values accepted by the society. The national institutional framework indicates the nature and extent of these rights, the way they are utilised and thus the possibility of maximizing value (Eggertson 1996). • These rights allow the use of resources, but in a specifically identified society; they need the special protection provided by public actors to produce the large scope of benefits.

Introduction:

• Transformation period required a transfer of real property from public to private actors in form of privatisation as the fundamental process.

• However, one of the problems created by socialist regimes legacy was lack of clear property rights settlement. In each post socialist country there was the different scope of taken over properties and - in result - a various number of harmed people.

• The restitution process, understood as settlement of disputes and claims made by previous owners and their heirs, was a necessary first step to the new order’s implementation.

Introduction:

• Restitution programs in East and Central Europe derived energy from revolutionary time of general change (APPEL 2005). These processes had often taken place together with the most profound system changes, in fact in some countries it was an inevitably and necessary process to establish market economy.

• Among post socialist and democratic countries Poland is the only one that did not carry out the general restitution.

The research question:

Poland is a member of EU, has democratic institutions and experiences a fast economic development. From this perspective there are important questions to be asked about the foundations of the national institutional framework. They refer to grounds and reasons of lack of general restitution process in Poland, the functioning of state with so large “gap” in institutional framework and the consequences of this situation.

The path dependent approach

The main idea of path dependent described by David and Arthur warns that there is the possibility of a lock-in to durably inefficient solutions because of increasing returns and the influence of small random events. However, there is necessary to mention that on the institutional ground there are various approaches indicating the unique and different framework due to the institutions’ specificity.

The path shaping and path dependent approaches

• There are researchers utilizing path dependence and path shaping approaches in analyzing the socio and economic transitional environment (NIELSEN at al 1995, p. 8). The path-shaping process was responsible for emergence of the Polish new democratic state introducing in the short period the new rules.

• The embeddedness of new institutions required longer period and had links to the past and new rules of governance. The mixture of old and new sculptured the future.

The past

• Nationalisation and expropriations were tools that enabled the rise of state ownership – the most welcomed in the socialist regime. As a consequence, the state took over not only the largest enterprises, but also medium- and small-sized firms, with the exception of handicraft workshops. Unlike other socialist countries, in Poland people were still allowed to own land.

• The speed and the scale of ownership restructuring depended on the political situation – the strongest pressure could be felt in the period of 1948-56, then the grip was slowly being loosened. Some laws in 70-ties tried to formalise illegal contracts and “grey” property market.

The transformation

There is a need to underline that during the path shaping phase there was no strong attempts of general restitution’s introduction in Poland. This state of affairs produces the visible sign that restitution was not a very important factor for Polish politicians. The first draft had the date of 1.07.1994 (Parliamentary bill No 532) and it focused only on real properties taken over in Warsaw. The next attempt – also in 1994 there was the Parliament resolution imposing the obligation on the government to prepare the general restitution draft.

The difficult issue

• Restitution in Poland has not been conducted in path shaping phase because it was on the one hand a really difficult and complicated process connected with political, ethical and technical problems, on the other, was not essential for carrying out economic reforms.

• The work on the introduction of the statutory rules of restitution have been therefore the result of clashing moral needs of reparations for victims and the economic needs of the country. The very substantial value of their claims was estimated at more than PLN 140 billion (about PLN 40 billion for Warsaw claims) in 2008.

The lock-in of an institutional path can be a result of the imperfection of feedbacks on agents'subjective models and existing organizations and interest groups strength. This lock-in shapes the policy and the possibility to adapt new institutions. Institutional lock-in in surveyed field implicates the false evaluation that implicated decisions (in fact - lack of decisions) are the best possible solution in current conditions.

The lock-in

Passage of time contributed to the increase in the level of indifference and even hostility of citizens to meet restitution claims. This social attitude influences the political willingness to solve the problem of restitution. Nowadays, there is a social distrust and feeling that in difficult financial situation of the State some of the citizens would be extra awarded by restitution process and the burden would be paid by the rest of the society. The negative attitudes are reinforced by media’s news about frauds and dishonest attempts of bogus owners to take property over.

The lock-in

Increasing political “returns”

Unpopular decisions are not taken (political supporters are not discouraged)

Officially, there is “work in progress” as an excuse

Increasing economic “returns” No need to incur direct expenditure, transaction costs are not visible

Increasing social “returns”

Social amnesia about socialist time-Keeping existing ownership structure

-Forgetting about not fair behavior

Lock-in

There is only one group of claimants having general legal ground for restitution - Polish citizens who left their property in previous territory of Poland (current Ukraine, Belarus, Lithuania) coming to Poland after II WW and people who were repatriated from Soviet Union and their heirs. This regulation was the result of Broniowski v. Poland case (Broniowski v. Poland, no. 31443/96, § 131, ECHR 2004 V), won by Broniowski in ‑Strasburg. Entitled people have right to 20% of value of left property. They can ask for a compensation or discount in price or fee when they are buying public property or are using them. At the end of 2006 the first compensations were paid. According to information given by Ministry of Treasury the by the end of Maj 2014, there were taken 56 207 positive decisions and there were issued certificates proving the right to compensation in the amount of approx. PLN 3 billion.

The hidden costs

Payments from the Restitution Fund from mid-2001 to the end of 2013 as the fulfillment of the only 929 claims had a total amount PLN 1,3 billion. The amendments allow the Restitution Fund to subsidize the compensation provided according to Article 215 Real Estate Management Act and, therefore, limited to agricultural properties, houses and land plots for housing taken over in Warsaw. Every year is expected to pay PLN 200 million. This is a response to requests expressed by the Warsaw authorities burdened with the necessity to pay increasing amount of compensation: in 2005-2008 annual expenses had a value of PLN 40-50 million, in 2009-10, they amounted to over PLN 60 million, in the period 2011-12 there was spent on compensation respectively PLN 305 and 290 million (Projekt Wieloletniej Prognozy Finansowej miasta stołecznego Warszawy na lata 2014-42).

Łódź is a specific city having many problems with property right claims. The reason is the history, in the past, before the I WW it was in Russian zone and there was no clear land register. During a short time of freedom there was not possible to improve the situation.In many cases there are no documents for socialist government decisions and there are problems with dates of taken over the property.

Łódź case study

Number of claims for restitution in Łódź in years 2008-2012:2008 - 56 10 was accepted2009 - 23 18 was accepted2010 - 25 8 was accepted2011 - 29 17 was accepted2012 – 38 4 was acceptedIn 2013 the total numer of all claims was 180

Łódź case study

Łódź case study

The lock-in issue:- National legal system (no pressure for a change)- Local habits and problems:

- no efforts in collecting data about potential claims- separation of pieces of information from different city

departments- problem with restitutio in integrum when the tenement

houses are redecorated- forgery of documents

Conclusions:The institutional lock-in does not allow for far-reaching changes from the primary direction. The theoretically built prosperity being the reason for the previous choice, can be in reality much smaller than assumed.In Poland, unlike in the other post socialist states, the general restitution law was not introduced. This has led to a strengthening of ownership structures from socialist time. The moral obligation of compensation is seen mainly by these whose families were harmed and there is only a small group.

Conclusions:

Nobody counts the hidden cost of current lack of general restitution: court cases costs (there is no collection of restitution verdicts), compensations paid in the whole value, discouraged investors. The case of Łódź shows that institutional lock-in is also strong on local level.There is a need for a deep change – shaping process again. To conduct it is necessary to have social support.

Thank you for your attention