The very rapid increase in the number of unemployed people in Poland at the beginning of the 1990s, following the restructuring and privatization of the State sector, led the government to believe that job creation for the unemployed should be strongly encouraged. This required a large-scale transformation of the employment services, which began in 1990 with the assistance of the ILO. Among the numerous activities conducted by the employment services, a system of start-up loans was made available to potential job seekers and to employers wishing to increase their staff numbers.

The involvement of the Labour Ministry's local offices enabled this procedure to be effectively implemented, and at the same time its use helped to enhance the spirit of enterprise and also to strengthen the skills and abilities of Ministry employees.

Numerous local bodies have continued the work undertaken and complemented the government's activities with the effect that in Poland today the vast majority of private activities are conducted by very small enterprises which make a significant contribution to the country's GNP: reference can be made to a snowball effect set in motion by these activities.

The large increase in unemployment between 1990 and 1993 (at the end of 1993 there were 3 million unemployed) greatly encouraged the labour administration services in their attempts to develop a spirit of enterprise, in particular among young people, in order to "activate" the expenditure devoted to unemployment.

However, unclear legislation with regard to the setting-up of enterprises, difficulties for individuals in obtaining bank loans, high indirect labour costs, low productivity and a mentality reluctant to take business-related risks were all significant obstacles to the implementation of this policy.

Enterprise activities can therefore be defined both by the introduction of loans granted to unemployed people in search of jobs and to small employers looking to recruit, as well as by efforts to encourage and train those interested in setting up small enterprises.

Its legislative framework has been ever more precisely defined as the assessment of its application has developed:

The Law on Economic Activity of 23 December 1989, the Law on Privatization of 13 July 1990 and the Law on the Expansion of Privatization of 9 November 1990, amended by the Law of 16 October 1991, represent the foundations of this framework.
Article 18 of the Law of 14 December 1994 defines the exact procedures and expands the scope of the framework to include workers laid off in large numbers while serving their notice.

The stated aim is mainly to encourage the unemployed and small-scale employers to establish or strengthen their activities, by providing them with the financial resources to create their own (or new) jobs. From the beginning, the government has considered that the wave of unemployment generated by the restructuring and disappearance of State enterprises could be absorbed by the large-scale creation of SMEs.

In order to achieve this aim, it was essential to create a spirit of enterprise which had been inhibited during the previous decades.

The local offices of the Labour Ministry have played a major role in implementing this policy

The network of labour offices, which are decentralized authorities of the Labour Ministry, has been retained with a view to implementing this policy. Established in its current form on 1 January 1993, the network is based around the National Office, the Chairman of which is appointed by the Prime Minister on a proposal by the Labour Ministry following consultations with the National Employment Council, and comprises 49 regional directorates and 365 local offices whose representatives are appointed at regional level.

These services do not have any fundamental links with the local independent communities which, for their part, also devise structures to promote job creation.

This activity forms part of the tasks of the local services. It is not carried out by isolated individuals. 400 of the 20 000 Labour offices system are responsible for managing loans, but this is not their only function.

The majority of these employees have undergone enterprise creation training as part of an ILO programme designed to enhance the capacities of the employment services; they have also received other forms of technical training.

The conditions for implementation have become more stringent since the activities began

Following an initial period during which no precise criteria of eligibility for loans existed, thereby providing local offices with a broad degree of autonomy as the authority responsible for initiating the relevant procedures, the conditions of allocation have been standardized in order to avoid any failures or abuses resulting from an insufficient initial investigation of the facts.

Consequently, the initial conditions of uncertainty have given rise to a wave of loans which are also linked to the effect of novelty value (a large number of potential enterprise owners already existed) prevalent in 1990, followed by a regular annual flow from a much lower level.

Other parallel measures, designed to promote job creation and targeted at different types of people, have been introduced:

subsidized employment in enterprises;
young people leaving school;
vocational training for young people as part of an apprenticeship.

Since 1995, activities targeted at the most disadvantaged groups, for example the disabled, women and rural populations, have been introduced.

In each of these cases, local offices pay wage-related costs either partially or in full.

The most original activity is the start-up loan scheme for unemployed people setting up enterprises:

general information was made widely available to users when the scheme was introduced in 1989-1990;
local employment offices take active measures to provide information on and to promote activities: they explain the regulations, which have been clarified, and provide free legal and professional advice to interested parties;
initiation training for setting up commercial activities have been provided.

The latest version of the procedures for obtaining loans, issued in 1998, are as follows:

eligible parties: the unemployed, staff surplus to requirements, those serving notice of redundancy;
an application is made to a local employment office indicating the amount of the loan applied for, the envisaged activity, a forecast budget, the desired reimbursement period and whether possible delayed payment should be envisaged at the beginning of the period.

A loan is calculated on the basis of the average cost of employment rather than on the basis of the cost of the investment possibly envisaged. For each job created, a loan may not exceed 20 times the average national monthly wage. A delayed reimbursement may be granted during the first six months and the total duration of a loan may not exceed four years. The interest rate is particularly favourable, since it is limited to 30 or 50 per cent of the common interbank rate.

Where necessary, after two full years of actual activity, a loan beneficiary may ask for the debts remaining to be written off.

The conditions governing employment creation loans for employers are similar. A loan is based on the number of jobs created. There is no limit on the number of such jobs, but if this is over 20, the opinion of the local Employment Council is required. In this case, no redundancies at all must have occurred in the previous 12 months; however, an employer may not have the debts remaining written off, either on a partial or complete basis.

Allocation procedure: a description of this procedure emphasizes the involvement of the different levels of the labour administration services.

A loan application is registered by a local office which verifies whether it can be accepted. It is then examined by a Committee for labour found loans, comprising a representative of the local Employment Council (a tripartite body), the head of the local office and a member of the team responsible for loans.

The legislative framework and procedure have been revised on the basis of the conclusions of a project conducted by Switzerland and the ILO, which has enabled the training of staff setting up individual loans to be improved and the procedure to be rationalized, in particular by defining the precise allocation criteria which were defective, following an experiment conducted in six administrative districts.

Reviews are conducted by local offices during the loan period: reimbursements are effectively monitored and site visits help to verify whether a new enterprise is actually carrying out its stated activities.

Multifaceted cooperation between different institutions

The social partners work together to verify the implementation of this policy as part of the local or regional Employment Councils which are "tripartite" consultative organizations and are peculiar in that they involve four different partners: the State, local communities, employers and trade unions. Within this institutional framework, the local communities, with a broad degree of autonomy, participate in the work of employment offices. As tripartite bodies, the local Employment Councils form part of the loan allocation mechanism.

Cooperation between the different partners responsible for improving the employment situation has led to an increase in the number of authorities designed to help set up small enterprises: the services of the Labour Ministry are no longer the only ones to provide start-up loans for different activities.

The introduction of start-up loans has been accompanied by a willingness to involve the social partners and, in addition, the different players be they institutional or otherwise of economic life. A new kind of cooperation with the local authorities has been introduced: these authorities have actively promoted the setting-up of structures which continue and expand the activities of the Labour Ministry services, including the establishment of enterprises, vocational training centres, businessmen's clubs, guarantee funds, non-governmental employment promotion agencies and so on, and give rise to cooperation agreements between the institutions concerned and local employment offices.

This network of relations has helped to foster a climate favourable to the development of individual private activities. In addition to the public employment service, there now exist 59 enterprise support centres which offer practical training, 31 Enterprise Development Foundations, set up by a World Bank programme, and 24 "incubators" which provide technical support for nascent enterprises. It should, however, be noted that the territorial distribution of this network is uneven.

Mention should also be made of the Entrepreneurs' Development Foundation, the Regional Funds, the Social and Economic Development Banks, the State Fund of Rehabilitation of the Disabled and the Agricultural Fund, all of which offer to loans to stimulate job creation.

Considerable resources are devoted to enterprises being set up together with sustained public funding

The introduction of the activities has meant that computer equipment is necessary to ensure that loans are set up and managed correctly, and that legal and professional advice is provided. The creation of a database, dissemination of information, provision of statistics and forecasting have been facilitated by the setting-up of a computer network which has reached a satisfactory level of operation by means of cooperation programmes conducted with the World Bank and the ILO, within the PHARE programme and on a bilateral level.

The network of local employment offices is financed firstly by the State budget and, secondly, by employers' contributions.

The Labour Found is state targeted found by organization which is now responsible for paying benefit to the unemployed and funding employment policies. The setting-up of a Found of ..... Unemployment, which would be responsible for funding unemployment benefits, was being studied in 1998.

The reduction in the absolute value of the Foundation's resources, from PLN7.5 billion in 1996 to PLN7 billion in 1997, has not adversely affected active expenditure to combat unemployment which appeared to have increased from 10 per cent in 1996 to 17 per cent in 1997, of which a small portion was devoted to start-up loans.

The recovery rate for start-up loans relating to enterprise activity varies between 70 and 90 per cent depending on the region, thereby constituting a noticeable improvement on the initial period. It may be considered that changes in prices, which are still considerable, make it easier to honour reimbursements.

Since the budget allocated to start-up loans has not been increased, this scheme appears to be well established or even to have reached a level beyond which it will not go. In addition, it should be noted firstly that loans are now provided by different organizations, since in no way does the Ministry claim to have a monopoly on them and, secondly, the economic context makes it ever more difficult to start a new form of activity, owing to competition which is becoming more intense. Furthermore, the selective nature of the loan allocation procedure has increased as employees investigating applications have become better trained.

A gradually defined assessment

There are sufficient data available showing similar trends for it to be stated that the activities conducted have satisfied their basic aims:

The number of beneficiaries of start-up assistance (job seekers and employers) between 1990 and 1997 was around 140 000, which led to the creation of approximately 300 000 jobs essentially in the services and commercial sectors. Compared to the number of 3 million unemployed in 1993, which began to fall in 1994, this result is quite considerable. The annual number of applications ranges between 8 000 and 10 000, and the number accepted between 3 000 and 4 000.
Typical beneficiaries usually conform to a pattern: They are men between the ages of 35 and 45, with between 1 and 20 years previous professional experience in a large State enterprise which has been restructured or closed, living in a large urban centre, and who have been unemployed for more than ten months. By contrast, there are few beneficiaries in non-urban regions. The vast majority of the activities chosen are in the services and commercial sectors.
The structure of Polish industrial fabric has changed radically in the past ten years: small and medium-sized enterprises represent more than 90 per cent of the total number of enterprises and, of those, 90 per cent have five or fewer salaried employees (2.4 million enterprises including 2.3 million in the private sector; 2.1 million SMEs of which 90 per cent are micro-enterprises): the SMEs employ more than half the 11.1 million active salaried employees in the private sector and contribute 40 per cent of GNP.

There does not appear to have been any precise strategic plan. The only designated measure was the budgetary funding made available for the activities conducted. However, the stated aim of the Polish government was very clear. The assessment criteria defined on a gradual basis have shown that this policy was effective.

Assessment criteria do not appear to have been defined in principle. However, the financial stakes of this policy have led the government to evaluate its effectiveness on a continual basis, thereby leading to several successive revisions of the technical regulations.

Thus, numerous assessment studies have been conducted by independent institutes both on behalf of the government and the social partners. A large amount of information is therefore available enabling the impact of the policy to be assessed. These studies have made a direct contribution to the successive adaptations of the mechanism by the government which have enabled the selection of beneficiaries to be improved but have probably made the mechanism less easily accessible.

An internal evaluation process became common practice in 1997 based on local experiences. The first indicator - which is the most widespread - is the rate of reimbursement of loans. Two other indicators - analysing the cases of failure and the cost of creating a new form of employment - are not sufficiently generalized as to be able to draw relevant comparisons from them between the regions.

As regards the beneficiaries: on an economic level, they have managed to create their own employment, enter the competitive market and earn income from their own activities; the status of entrepreneur has been greatly enhanced. On a social level, these activities have enabled them to break down the psychological barrier erected by their period of unemployment and to develop their self-confidence. The learning capacity of the unemployed in the open economy has increased. Finally, these activities have helped to establish a middle class.

As regards the government: the major objective of increasing the number of jobs has been achieved. The opportunity presented by the loans granted has encouraged individuals to find employment and has helped to transform passive benefit expenditure into active expenditure. In the medium term, these activities lead to a rebalancing of the budget by reducing the number of unemployed receiving benefits and by increasing the tax receipts generated by activities subject to VAT. Finally, the creation of very small enterprises is an essential basis for local development.

Effects produced which relate directly to the role of the labour administration should be emphasized: the noticeable improvement in the ability of the Labour Ministry authorities to provide users with a service, in particular by learning to provide legal and enterprise management advice, together with the actual involvement of the social partners in these procedures, have led the Labour Administration to play a central role in the transformation of the economy.

Furthermore, the Labour Administration has been directly involved in the international cooperation projects implemented (PHARE, ILO and the World Bank) which have provided concrete results.

Today, the success of these activities constitutes experience which may be of use to less advanced countries engaged in a comparable transformation process.