WARSAW, NOV. 16 -- The E. Wedel Chocolate Co., which is to Polish chocolate what Xerox is to photocopying, has wrestled for months to escape the sticky embrace of communism.

Wedel is caught up in one of the most far-reaching economic transformations in European history. It is being privatized, but far more is at stake than free-market principles.

Wedel is as much a Polish legend as it is a company. Its fine chocolates have tantalized Poles for 139 years. The chocolate factory is so entrenched in the national psyche that one of its fancy candies, a mousse-filled, chocolate-coated cube called Bird's Milk, is part of the language. To say that someone "lacks only Bird's Milk" is to assert that he is rolling in dough.

Communism sank its teeth into E. Wedel in 1949. The Communist regime, in honor of its own birthday, changed the name to the "Twenty-Second of July Factory, formerly E. Wedel." Poles hated the change but ate the chocolate. They ate it even after the nationalized company started making "chocolate-like products," which tasted like cardboard.

According to a Warsaw joke, communism would be finished when the chocolate factory changed its name back to E. Wedel. That, indeed, happened.

But restoring a name does not expunge 41 years of socialist management. Nor does it chase away the old-guard managers who devoted their lives to making chocolate-like products. Nor does it make Communist-era Bird's Milk taste any less like cardboard. Indeed, it remains far easier to endorse privatization in post-Communist Poland than to execute it.

The latest chapter in the history of the chocolate company began last summer when the Polish Ministry of Ownership Changes selected Wedel as one of the "Big Seven" major industrial concerns where a "model privatization" could be pulled off without a hitch.

It was chosen in part because, in a country with about 7,000 state-owned enterprises, many of which lose money, E. Wedel is rich. Its after-tax profit last year was about 21 percent, a figure four times higher than that of large Western chocolate companies.

Furthermore, while socialist management techniques were often inefficient, wasteful and self-destructive, officials at the Ministry of Ownership Changes concluded that the old-guard managers of Wedel were not half bad.

"If they didn't destroy the company in the previous Communist circumstances, they must be better than average," Krzysztof Stupnicki, a young economist at the ministry, said in September.

Things looked so promising at the factory that last summer, Paul Halladin, a London stockbroker, recommended that investors interested in Poland should consider stock in Wedel. He said it has enormous potential for expansion. Poles, per capita, are among Europe's most voracious consumers of sweets.

During the past quarter-century, nothing important has happened at the chocolate factory without the approval of Andrzej Karbowniczek, the company's general manager.

Karbowniczek is a handsome 63-year-old man with a full head of white hair and a courtly manner. Like many longtime Communist managers, he is the son of a farmer. He studied Marxist economics in a Polish university and was an activist in Communist youth organizations. For decades he has been receiving guests at the chocolate company with coffee, chocolates and cognac.

According to several contemporaries, the chocolate factory manager maintained excellent contacts with senior Communist ministers. He entertained them regularly at his company's three holiday centers.

Among his wide circle of contacts was an especially close relationship with Agros, a large state-owned import-export firm that for years was the sole supplier of cocoa in Poland. Karbowniczek describes himself as "a very close friend" of the general manager of Agros, and in 1988 he became chairman of the supervisory board of that company.

The general manager's cozy relationship with the sole supplier of his factory's most important raw material did not sit well with some executives at Wedel.

"This fixed connection to Agros really bound our hands. But we felt that because of the connection of our boss to Agros we shouldn't complain," said Jozef Rutkowski, an executive who has worked at Wedel for 19 years.

Most unsettling were the prices that Wedel paid Agros for cocoa. In May 1989, for example, when the world price of raw cocoa was about $1,150 a ton, Wedel paid Agros nearly $1,700 a ton. Over the past five years, Wedel bought cocoa from Agros at 20 to 30 percent above the world price.

Although they did not know the details of this systematic gouging, many workers at Wedel have felt for years that something was criminally wrong with management.

"This factory was pushed to the edge of ruin by Mr. Karbowniczek," said Andrzej Kaminski, head of the factory's Solidarity union chapter.

Particularly irksome was the lousy taste of the chocolate. "I know that the quality is worse. They {the management} seem to have forgotten the old recipes," Kaminski said.

As a result of international sanctions imposed on Poland after the Communist government's martial-law crackdown on Solidarity in the early 1980s, Wedel was forced to cut its imports of raw cocoa.

This led to the production of "chocolate-like products," which contain almost no cocoa butter. Cocoa butter, a paste refined from raw cocoa, gives chocolate its rich taste.

After about four years of scarcity, Wedel again was able to purchase raw cocoa for refining cocoa butter. But instead of using cocoa butter to make chocolate, Wedel continued to produce large quantities of chocolate-like products. The company began selling cocoa butter separately.

Karbowniczek had figured out a way to capitalize on martial law, according to Rutkowski. "The abnormal condition of martial law gave us two sources of income -- chocolate-like candy and cocoa butter," Rutkowski said.

The quality of Wedel chocolates nosedived, but the company still made healthy profits. Agros, the import-export company with which Karbowniczek is especially close, also profited.

"It was Agros which bought the cocoa butter," Karbowniczek explained. "We simply processed it and sold it. It was very profitable."

He insisted, however, that his position as chairman of Agros's supervisory board did not compromise his position as general manager of the chocolate company that Agros was systematically milking.

By the rules of East European socialism, which have only begun to break down in Poland this year, there was nothing extraordinary about what Agros was doing to Wedel.

"All prices in the old system were a function of ideology and not real costs," explained Wieslaw Jasinski of the Ministry of Foreign Trade. "These prices were set by the state." The system was such that if Agros received 20 percent more than it should have for raw chocolate, then that money was used to subsidize unproductive Polish industries.

The socialist state found money for hopeless companies by draining it away from profitable ones such as Wedel. "The situation was totally crazy, but it was not really corrupt," said Krzysztof Lis, deputy minister of the Ministry of Ownership Changes, which was created in May and is trying to dismantle the not-quite-dead socialist system.

"The main problem with communism in Poland," Lis said, "was that there was a tremendous amount of wastage. . . . There was over-employment and there were unneeded foreign trips. But corruption -- stealing by managers -- was probably less than 10 percent."

There has been no hint, for example, that Karbowniczek misappropriated money. He lives modestly in a small Warsaw apartment. The accounting system was very strict at the chocolate company. The system was not crooked but absurd.

Courtship of the chocolate company by a foreign investor began in May 1989, when communism was on the way out in Poland.

Nestle, the world's second-largest chocolate company, proposed a joint venture with Wedel. As political change accelerated over the next year, these talks evolved into an understanding that Nestle would become a major stockholder in Wedel -- after it was privatized.

Karbowniczek, for his part, seemed to be as enthusiastic about privatization as any old-guard manager. "After the political changes were visible, I shared the view that the new government was on the right track and I wanted to privatize," he said.

Karbowniczek held 17 meetings with workers' groups. He also began negotiations with Nestle, which proved inconclusive.

"Karbowniczek was always very charming," said Maria Zakrzewska, who works for Nestle. "He offered cognac and coffee. He described his hobbies. He spoke about his family. But when someone put a question to him about chocolate production or manufacturing, he said, 'I am very sorry. I have to leave.' And he ran out of the room."

The chief negotiator for Nestle was Claude Begle. When he and a team of investigators were granted access to company books, they were jolted to discover the inflated prices Wedel paid for raw cocoa. The books showed that Karbowniczek had run Wedel in a way that quickly would have bankrupted it in the non-Communist world.

Nestle, however, had no choice but to privatize with Karbowniczek, who reassured Nestle that he wanted an exclusive deal.

"Honestly, Claude, if I were to open negotiations with anyone else, I couldn't look you in the eye," Karbowniczek told Begle on several occasions, according to participants in the negotiations.

Karbowniczek said he does not recall these conversations, nor does he remember hearing that Nestle wanted to buy more than 10 percent of Wedel's shares. Other executives at Wedel say it was clear to everyone that Nestle was after a controlling interest.

After months of ambiguous glad-handing, Karbowniczek made his move on Aug. 13. The Workers' Council at the chocolate company was meeting that day to give final approval to a memorandum of understanding between Wedel and Nestle. To the astonishment of the workers, Nestle and several Wedel executives, Karbowniczek suddenly had a counteroffer.

It was exceptionally generous to Wedel's 3,000 employees. It promised them all 50 percent raises and no layoffs. The offer whetted worker appetite for pay raises. They decided to reject the Nestle offer, which guaranteed neither raises nor employment.

The surprise offer came from Agros, the state-owned import-export firm on which Karbowniczek sat as chairman of the supervisory board. The offer included language that would have made it possible for Agros to guarantee Karbowniczek's long-term position as general manager of the chocolate company. "Karbowniczek would have been able to appoint Karbowniczek," is how one disgruntled negotiator put it.

Karbowniczek disputes this interpretation, saying he had no personal interest in the Agros offer and was as surprised by it as anyone. Workers and executives at Wedel, along with officials at the Ministry of Ownership Changes, find his denial hard to believe.

The denouement to the story of the chocolate factory is that Karbowniczek lost.

Nestle representatives, in meetings with the Polish government, complained bitterly about the Agros offer. Nestle wanted nothing more to do with Karbowniczek.

But workers at Wedel concluded that Agros was making unrealistic promises. They, too, demanded that Karbowniczek be sacked. Late last month, the government suspended him from his duties.

What particularly annoyed the government about the Agros offer was that a state-owned company was trying to buy one in the process of being privatized. Instead of the socialist system breaking up, the system was trying to swallow its tail.

The new general manager of the chocolate factory is Jozef Rutkowski, who has the trust of Nestle and the workers. He promises never again to make chocolate-like products.