Friday, 14 May 2010

The iron filings factory: an economic parable

As any child that has learned about magnetism will know, iron filings are an essential part of any school experiment to learn about how this phenomenon works.

In March 1949, the Council of Economic Ministers of COMECON determined that in the struggle to defeat the American hegemonists and their revanchist and neo-imperialist allies, the Socialist bloc needed Scientists. Vast ranks of them. Accordingly, science must be an important part of any school curriculum, second only to the teaching of Marxism-Leninism. Labs would need to be equipped - and supplied. To teach Magnetism to the children of the USSR, Poland, Czechoslovakia, Bulgaria, Romania and Hungary were needed Magnets. And Iron Filings, without which Magnets would simply be useless little metal horseshoes painted red. Magnets, of course, would come from Magnitogorsk - magnet mountain - in the USSR.

But iron filings... ? The Polish delegation successfully lobbied to situate the factory in Mazursko-Pomorskie province, a rural part of the Polish People's Republic that had been, until the war, a rural part of the Third Reich.

And so, with great socialist endeavour, the sweat of the toiling masses, a giant iron filings factory was built on what once were sugar beet fields, near the town of Natomiast (pop. 15,000). Because of shortages of building materials, sabotage by backward, reactionary, anti-socialist elements of Polish society and endemic drunkenness and absenteeism, the grand opening of Natomiast's Leninist Progess Iron Filing Works (Natomiejskie Zakłady Opiłków Żelaznych im. Postępu Leninowskiego) did not take place until November 1956. To facilitate the transport of the iron filings (in 100kg sacks woven from Chinese silk), a broad-gauge railway line was built into Poland from the USSR, while standard gauge tracks carried the finished goods south and west to fraternal democratic people's republics.

NZOŻ gave full-time employment to over 3,000 Natomiastians. The production lines were full of skilled workers, patiently filing away ingots of pig-iron and carefully sweeping the resultant dark-grey powder into small heaps which were checked for quality under microscopes, before being bagged for onward shipment. Socialist production norms were set and exceeded*.

It was not just production line workers. There was a large administration and personnel department, a transport and maintenance department, a book-keeping department. And because the Polish People's Republic existed for the best interest of the workers, there was a Social Fund run the by the official trade unions; the iron filing workers of NZOŻ had their own sanatorium and resort in the Złota Sól mountains by the Czechoslovakian border. Workers had their own shop, where luxury items such as lard, mustard, boot-laces, nail-scissors and hair-curlers were available, even when the shelves of the local shops were empty.

And so, the factory fulfilled its obligations, and schoolchildren from Magdeburg to Vladivostok would be able to learn about how opposites attract. The factory's seven smoke stacks belched smoke to show how productive it was; trains would arrive bearing ingots and take away sackloads of iron filings. Sometimes the factory was paid in tractors, at other times, in oil, and again at other times, not at all. Times were good, times were bad, but everyone had a job. And in the town of Natomiast, hairdressers' cooperatives, taxi-drivers and even the odd private-sector hat-maker, all managed to live from month to month.

Natomiejskie Zakłady Opiłków Żelaznych im. Postępu Leninowskiego in 1956

In this quiet corner of Poland, far from the hot-beds of cosmopolitan intelligentia, the factory kept on going, toiling away to turn lumps of iron into something that let Socialism's young students experience the power of magnetism at first hand. 1968 came and went, as did 1970. The workers kept on filing while the works Party Committee would take turns to read chapters from Marx, Engels and Lenin through the factory's public address system between the pop songs of the day.

In 1980, as Solidarity-inspired strikes swept the nation, something snapped. Suddenly, the workers rose up, demanding rights they'd never dreamed of before. The management caved in. A marvellous 15 months of freedom ensued, ending as it did in Martial Law. Things were never the same, many young people upped and left, heading west.

The Big Man from the Party running the factory was replaced by someone lean and hard, someone without family or connections in the town, but well connected with Warsaw and the Ministries.

Then, in 1988, something changed. There were strikes, the people from the Party were looking scared. From Warsaw came rumours that communism was doomed. A year later, there were elections. The workers were fearful; what would become of their factory? They could hardly focus on the task in hand: filing iron. Quickly, the state enterprise restructured itself and changed its name to the Sendivogius Science Education Supplies Joint Stock Company, 100% owned by the State Treasury.

Privatisation. The Free Market. Freedom. Deutschmarks and dollars legally on sale in the streets. Goods from the West everywhere, though at prices that seemed absurd. You could practice religion and be patriotic and no one would bother you! The people from the Party suddenly had Mercedeses.

But then orders for iron filings from Bulgaria dried up; The USSR disintegrated, as did Czechoslovakia. Their ministries of education no longer even picked up the phone... Things looked grim. With no one to buy their iron filings, the factory would close, they'd all lose their jobs...

The men from Solidarity went to Warsaw. They sold their case well. "If the Natomiast Iron Filing Works closes, the town would die," they said. "Keep it going for a bit, we'll look for new markets in the west, we'll restructure... invest in new technology to make the iron filings more efficiently... don't kill us off... We'll find jobs for the boys..." It worked. Warsaw didn't close the factory.

Cash-strapped education supply departments from Bonn to Ottawa suddenly realised that they could source iron filings from Poland for a fraction of what it had cost them before. Within 18 months, Natomiast had reorientated its customer base entirely. A new breed of young manager emerged, speaking foreign languages, able to negotiate, started to make itself felt in the structures of the factory. Somehow, they managed to keep the place going. Old people, who'd been with the works since they opened, retired. The sanatorium was sold off, the railway lines gathered rust as delivery vans took over. But at the end of the day, the factory was getting deeper and deeper in debt and making bigger losses each year. The cost base - keeping all these fixed assets going, and all the people - was way too high.

The Marshal (chief executive) and Voivode (governor) of Mazursko-Pomorskie realised that if the factory closed, the town would die, and they'd have political problems. So although they were from different parties, they agreed to find the funds to keep the factory going.

Twenty years passed. Poland's Ministry of State Treasury has privatised tens of thousands of state enterprises large and small, but the iron filings factory in Natomiast remains in public ownership. At each parliamentary election, the winning party would take control of the Ministry of the State Treasury, throw out the old Secretary of State, under-secretary, directors, managers etc., and replace them with its own people - trusted people. They in turn would replace the chairmen and boards of state-owned enterprises such as the Sendivogius Science Education Supplies Joint Stock Company in Natomiast. The chairman and the board, they'd be party members or friends or family of party members - never mind of what party - UW, SLD, ZChN, PSL, PiS, PO - they would take over the company, sweep out the senior and middle management and replace it with their mates and their family members.

After each election, out would go the placemen of the losing party, in would come the winners; knowing nothing about the iron filing business (and indeed not in the least bit interested in it), they'd take the salaries, the chauffeured cars, and do the minimum needed to hang on in there on until the next election when they too would get swept out.

On the shop floor, the West German filing machines, bought in the 1970s, have broken down long ago, so the filing is done by hand as it was in the 1950s. For every person filing iron, two calculate the VAT owed on each (infrequent) transaction, another three work out the ZUS contributions; health and safety paperwork is ticked and filed, accidents duely noted down (17 cases of scraped fingernail in April 2010); the Social Fund, a shadow of its former self, still pays for staff trips and drunken teambuilding and training sessions. The Chairman of the Board, the directors and managers have their chauffeured cars for when they need to rush to Warsaw for an urgent meeting at the ministry.

Glamorous state-owned companies in sectors such as construction, energy or financial services have long been privatised; foreign capital now owns them. Run along the lines of global best practice with HR manuals inches thick, they are now as efficient and productive as companies anywhere. But back in Natomiast, things go on the way they always have. In a huge warehouse, sackloads of iron filings rust into solid lumps, unwanted at any price. School supply departments have long since found cheaper, higher-quality sources of iron filings (China), the bottom has dropped out of the market. The Sendivogius Science Education Supplies Joint Stock Company currently employs around 1,850 people. Natomiast's population has shrunk to 10,000, but the closure of the factory in a district (poviat) where unemployment is currently over 26% would be a disaster for the town and its hairdressers, restaurateurs and hatters.

So Poland's tax payers keep forking out millions of zloties each month to keep Natomiast's iron filing factory going. Though no one wants its product. Local and national politicians cannot bite the bullet on this one. How long will the Polish taxpayer have to keep such factories open?

* Falsified.


White Horse PIlgrim said...

I did like your reference to "a shop selling such luxury goods as lard and shoe laces". I remember getting stuck in Belzec in the mid-80s and trying to find something edible in such a shop. Given the nondescript packaging, I nearly ended up with soap to eat.

The lesson was to find a private enterprise stall where the farmer at least sold apples and tomatoes.

To linger in the past is a mistake. But to modernise equitably is a real challenge.

Anonymous said...

What a poetic story! Anyone making a movie about it?

I really enjoy your blog. You describe your everyday life in such an interesting way! In parallel, you connect your readers with the 'big picture' of Poland. Excellent writing!

KM said...

I'm not sure I understand. Or put another way, the story seems completely, sincerely unbelievable to me. Is it really the truth?

Sources? Citations?


Michael Dembinski said...

WHP, Anon, thanks.

KM - it's a parable. It is indeed completely made up - light-touch ironic humour.

The serious point is that around Poland there are still hundreds of state-owned enterprises that the state hasn't got round to privatising. As White Horse Pilgrim so appositely observed, it is about finding the balance between modernising an economy and doing so equitably.

Political parties find it a) uncomfortable to grasp the nettle and b) convenient to keep the status quo.

student SGH said...

a brilliant story full of spot-on diagnoses.

Why Natomiast, not Natychmiast. The latter would sound better - Natychmiastowy kombinat or sth like that...

This form works better than academic economic waffle I spew out and publish on my blog. Apart from the political problem (some's afraid, for someone it's convenient), there's a bigger problem. Those are the hapless workers. They don't realise at all their company is not viable, costs exceed revenues and often are unable to face the truth - what the do doesn't generate any value. Those low-educated Poles who grew up in PRL often do not understand the simplest principles of economics. They take it for granted they should work, no matter if there's a demand for their products. If the factory must be subsidised by the state, it's państwo who should give the money. But there's no such entity as the omnipotent state, there's just a budget made up money collected from taxpayers. Plus most of those people lack both hard and soft skills necessary to find a job somewhere else and to boot are reluctant to requalify themselves.

The recent events could have compounded their anger. "Governments bail out banks, why can't the Polish government help us?", they'd ask.

KM said...


Thanks for the clarification. My instincts were right but the level of my ignorance about Poland is so high that I'm easily fooled :). It is very interesting for me (a Canadian) to live in and learn about Poland. As an ignorant westerner, I tend to have a fairly simplistic view of the differences between 'the way things were' and the way things are. I guess as it turns out, many things remain the way they were.

Bob said...

Good one Michael!

To the foto gielda in June perhaps?


jan said...

If state owned company's managers have chauffered cars it's because the company is profitable. There's no public support for industry in Poland, private or public, and you shouldn't create an impression that there is. No, wait. Doesn't the state supports foreign investors (like Dell or Mittal) ? Who obviously drive their cars.

Anonymous said...

Brilliantly written piece Michael. It read like a good criminal novel, I could not stop. Have you thought of writing books? There is a lack of English language books in Poland on the subject of Polish economy and politics.
Now to the topic. Not much has changed over the years in Poland by my standards, yet I thought the current generation would bring on change. It’s about ones’ entitlement to titles, government subsidies from child care through post secondary education to early retirement. What’s to motivate a person? Regardless of the class and the urban or village roots, people must find in themselves the motivation to make the difference, starting with their home, community, local schools and their workplaces, looking for efficiencies and higher productivity. Always expect more of yourself than others and never settle for mediocrity.

Island1 said...

Excellent stuff.