As described in previous OECD Economic Surveys and the Review of Regulatory Reform in Poland (OECD, 2002), Poland has made substantial progress towards establishing an institutional structure compatible with a well-functioning market economy. The private-sector now produces some 70 per cent of GDP; there are over 3 million independent firms; the Polish stock market is the most active and largest in central Europe and, in recent years, Poland has become a privileged destination for foreign direct investments. This transition has been facilitated by major changes to laws governing capital and product markets, and efforts to improve the regulatory framework. Increasingly industrial policy dictates and over-regulation are giving way to market forces, and economic relations are being governed by law, with independent regulators ensuring that competitive forces help to distribute the fruits of this transformation to the population as a whole. Despite substantial accomplishments over the past decade, problems persist. In product markets, an acceleration of the privatisation process and further strengthening of the regulatory environment are essential to speed up the rate at which Polish incomes rise to western European levels. Progress in improving the functioning of labour markets has been less marked. With unemployment now in excess of 20 per cent (based on the Labour Force Survey) and non-employment looking increasingly structural in nature (Chapter I), there is an urgent need to correct distortions so that market forces can complement efforts to reactivate the population.