POLAND’S ECONOMIC GROWTH by Stanislas Lalane

This week in Economics Society, Stanislas gave a talk on his Waynflete project “Will Poland’s current rate of economic growth continue and what could the government do to increase it?”

The areas that were examined in this talk included:

  • History of the Polish economy
  • Challenges facing the economy
  • Improvements that could be made to enhance the current state of the economy

Brief overview of the current state of the Polish economy

During the 2009 recession Poland managed to be the only economy in the EU to avoid negative growth. On top of that, Poland has enjoyed continuous economic growth during the last two decades, managing to withstand the early 2000s crisis.

The history of the Polish economy

Stanislas began by giving a brief overview of Polish economic history. The Polish Lithuanian Commonwealth (1569-1795) depended on the Grain Trade, one of Europe’s largest trade patterns which saw over 230,000 tons of grain exported from the Commonwealth annually at its peak. In the short term it yielded huge gains for all parties involved, stimulating the development of towns like Danzig and Thorn. The Grain Trade also encouraged entrepreneurship amongst people and made them prone to risk-taking. However, in the long run the Grain Trade effectively led to the stagnation of Polish manufacturing, and there was little incentive in the early years to invest outside agriculture; even today Poland still has a high level of employment in agriculture, with almost a fifth of the working population involved in agriculture.

Until Poland’s independence in 1918, it had a relatively weak economy, which was summed up by Keynes as “an economic impossibility with no industry but Jew-baiting.” Apart from a few successful attempts at modernization such as the creation of a new port at Gdynia, Keynes’ summary of the Polish economy remained largely true until WW2 broke out in 1939. WW2 itself bought immense destruction to Poland, which is estimated to have killed about 20% of the population, along with major damage to infrastructure.

A communist regime was imposed upon Poland lasting until 1989. The regime stimulated the development of heavy industry such as coal, which can still be seen today, through hopelessly mismanaged consumer goods and by 1989 Poland was undergoing a severe crisis with hyperinflation.  Leszek Balcerowicz implemented a policy of “shock therapy,” which is what helped transform the ex-communist economy of 1989 into today’s free market one; the process however was a painful one, and at no time over the last 20 years has Polish unemployment fallen below 10%.

The main challenges

The Economist tends to mention excessive government regulation and debt as key problems facing the Polish economy. According to the findings in the Waynflete project, the concerns over debt appear to be over exaggerated. Polish governmental debt relative to GDP is well below 60%, a far better position than most of the countries currently experiencing debt problems. In addition, unlike Greece, a large proportion of Poland’s public debt is held domestically, meaning that there is less risk of a sudden surge in bond yields due to a panic attack. Regulation, on the other hand, is a genuine burden on economic growth. Poland ranks a pathetic 126th in the world in the ease of starting a new business, behind the rest of Central Europe and even parts of Africa.

The other main challenge to growth that was highlighted is Poland’s inadequate and poor infrastructure. Poland has only several hundred kilometers of motorway and only one fast train line, which seriously hampers internal connectivity; it is now faster and arguably easier to go from Warsaw to London than between Warsaw and Gdansk by train. However, this weakness is being gradually overcome thanks to the EU funding.

Other areas mentioned briefly during the talk included the financial sector, demographic constraints and education. Attention was also drawn to the Pension scheme that operates in Poland whereby people receive an amount proportional to that they paid into the Pension scheme, a system which is sustainable unlike other developed countries where the dependency ratio in regard to pensions is high. Poland is also one of the fastest growing exporters. The conclusion was that Poland’s growth will continue, providing that the Eurozone crisis does not hamper it given that a significant number of exports are directed towards EU.

The tragic consequences of poor infrastructure

poland

Key recommendations

A total of 22 recommendations were made in the original project. These varied immensely, and included:

  • Rebalancing taxes by shifting them away from labour related taxes and hence decreasing the labour tax wedge- either raise the personal allowance to PLN 5000 or introducing more tax credits
  • Increasing the role of Public Private Partnerships in building roads by giving local government the required professional legal resources
  • Attempting to keep the Zloty close to its current rate
  • Preparing contingency plans to keep ‘orphaned’ banks in Poland open if parent companies in Western Europe fail due to the Euro Crisis
  • Repealing or reducing the stamp duty to increase domestic labour mobility
  • Considering a retirement age of 70
  • Introducing university fees of around of $3,000 per annum in public universities, providing that a student loan system is also set up and that the money raised is invested in improving university quality

 

Below is the link to the Waynflete Project on this topic which has been kindly provided by Stanislas for anyone interested to read more on this topic:

Poland’s Economic Growth – By Stanislas

 

The talk ended with several questions ranging from ‘to what extent does the immigration of Polish workers result in a brain drain’ to ‘what are the reasons why Poland remained to be a difficult place to set up a business in despite the cult of entrepreneurship’. Any further discussion on this area is welcomed. Thank you to all those who attended.

In the next Economics Society gathering Perlie Mong will be discussing ‘Income Inequality in Hong Kong and the World’. 

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