WARSAW, NOV. 2 -- A year has passed since Poland declared that it would do what no longtime Communist state had ever done: jump head-first into the fast-moving waters of the free market.

Since then, with an aggressiveness and consistency unmatched in Eastern Europe, the Solidarity-led government has stuck with an economic package that has transformed daily life in this country more profoundly than any changes since World War II.

Decades of shortages have ended as shops and sidewalks have been saturated with goods. It is consumers, if they have the money, who call the shots -- not faceless bureaucrats.

The private sector is booming and farmers have produced a record grain crop. For the first time since the war, the government budget is in surplus and the balance of trade is positive. Hard-currency reserves exceed $5 billion -- an amount unimaginable last year.

There has been a grim downside. Unemployment has grown faster than expected and is predicted to reach 12 percent next year. Inflation, although reduced, remains unacceptably high and real wages have fallen sharply. Many Polish managers seem unwilling or unable to adapt to market incentives. The output of state enterprises -- which still account for 90 percent of the economy -- has dropped 30 percent.

Most dangerously, the Persian Gulf crisis and internal problems in the Soviet Union have combined to threaten energy supplies at a time when Poland's economy is teetering between recovery and collapse.

The radical free-market changes underway here resonate far beyond this country of 38 million people. The Soviet Union and all the post-Communist states of the old Eastern Bloc are beginning to walk down the trail that Poland has blazed. Just this week, Hungary, Romania and the Russian republic announced accelerated programs of economic reform.

The successes -- and failures -- of Poland's attempt at "shock therapy" point to the potential -- and dramatize the limits -- of rapid capitalist reform in the post-Communist era.

The principal architect of change in Poland has been Leszek Balcerowicz, the finance minister. In the past year the 43-year-old economist, who has a PhD in economics from Warsaw University along with an MBA from St. John's University in New York, has become a household name in Poland.

The "Balcerowicz program" has won grudging acceptance here as the only workable cure for the diseased economy bequeathed by 40 years of communism.

Both of the major candidates in the presidential election to be held later this month -- Solidarity union leader Lech Walesa and Prime Minister Tadeusz Mazowiecki -- have hinted that Balcerowicz is their preferred candidate to lead the government as the next prime minister.

In an interview this week, Balcerowicz conceded that he was "unpleasantly surprised" in the past year by the difficulty of controlling inflation and by the precipitous drop in industrial output. But he argued that the worst is past, saying that Poland began last summer to recover from its severe recession.

"From June, you have a revival of production overall, including manufacturing taken as a whole. The whole recession occurred in the state sector. The private sector, the sector which we would like to be expanding, is expanding," Balcerowicz said.

Government figures show a remarkable 35 percent growth this year in the private sector as compared to 1989. Most surprising is that Poland is showing a strong capacity to export to Western markets. In the first nine months of this year, exports soared by 27 percent.

Although recession and depressed demand have led to a fall in imports, Balcerowicz points out that one important import sector is booming as never before.

"Imports of machinery have increased about 24 percent this year. There are enterprises which are modernizing and developing. These are the potential for growth.

"Our statistics do not even capture the most dynamic phenomenon in the Polish economy. This is the explosion of the street trade," Balcerowicz said.

The sidewalks of Warsaw and virtually every city and town in the country are choked with freelance traders selling everything from bathroom plumbing to bananas. Sidewalk competition has crippled many state-owned stores and helped fire a process that so far has turned more than 20,000 state shops into private businesses.

Mokotow, an industrial and middle-class district of Warsaw, exemplifies the speed with which market-led change is remaking Poland. In the past nine months, 3,000 small and medium-sized firms have been privatized and 900 new private shops have opened.

"We have no shortage of people who are willing to work very hard to make money. Let Europe in 10 years beware of Poland. This is not a joke," said Mokotow council member Grzegorz Bialoruski.

"We see a basic change in how merchants are thinking. Before, it was high profits and low turnover. Now they have low profits and high turnover," said Bialoruski. "Our district's revenue from taxes is going up from the increased business. We are planning to build new schools, kindergartens and begin renovations."

Growth in the private sector, however, is of limited use in reviving the Polish economy. Despite the boom, it still accounts for less than 10 percent of output.

What worries economists is the unwillingness or inability of many managers in state-owned industry to respond to free-market incentives.

"Balcerowicz had hoped that the national sector would adapt itself more quickly," said Stanislaw Dlugosz, an assistant planning minister. "But our enterprises are quite passive. They sit and wait and hope that the state will come and help them. These managers are still used to the old system whereby the government persuaded them to take credit. If they wasted it, they could count on the government to bail them out."

A telling measure of the timidity of state enterprises is their reluctance to use Western credits for modernizing, marketing or expansion. Nearly $10 billion in foreign capital has been made available by Western governments and international institutions.

"We are unable -- at this point -- to use this credit," said Dlugosz.

The failure of the government to force faster changes in the management of state enterprises has triggered the most lacerating criticism of Balcerowicz and his program.

Indeed, Walesa's presidential campaign is built around his populist contention that the government has been too soft on the old Communist managers. Walesa, the favorite to win the Nov. 25 election, has promised to take "an ax" and purge state companies of the old party elite.

Even among professional economists, there is a widespread feeling that the government has not done enough to shake up state industry.

"The state sector has found a way to lie low until the time of reforms is over," wrote economist Witold Gadomski in the influential financial newspaper Gazeta Bankowa. "The Balcerowicz team's tight financial policy has influenced household and private sector behavior, but it has left state-owned giants unmoved. The obvious conclusion is that the state sector needs drastic changes."

The tool for overhauling big state companies is privatization, but creation of such a tool was delayed for nearly half a year. In part, the delay in passing a privatization law was caused by fear of foreign (particularly German) ownership. It also was due to worker demands for ownership and management rights.

Since the law was passed, foreign businessmen have complained that it hobbles professional management and discourages large investment.

"Privatization is against the socialist doctrines that were instilled in our population for 40 years. In order to appease the feelings of some people, we have had to go slowly. This is the price to start the process," said Dlugosz, a former Communist who is soon to retire after 19 years at the Ministry of Planning.

Balcerowicz concedes that privatization has gotten off to a slow start.

"However, I am not sure, given the circumstances, that it could have been much faster. This year we have been breeding the fundamentals for much faster privatization in the years to come," he said.

While Balcerowicz has had to endure frequent criticism in the past year, almost all of it has been aimed at fine-tuning details -- not at changing its free-market direction or slowing it down. This might change. The presidential vote and legislative elections next spring could weaken the government's appetite for painful change.

Walesa, although he now says he supports Balcerowicz, has made campaign promises that, if kept, could derail free-market reform. Walesa has told workers that they are bearing a disproportionate burden of pain from a program cooked up by "eggheads" in Warsaw.

"There are some complications," Balcerowicz admitted, hinting at limits to his role under a possible Walesa presidency. "One would probably have to make a correction for rhetoric, but I do not take it for granted that it is possible to continue {in government} under any political circumstances."