For anyone following the Polish economy, the article in this week's Economist is a must-read. Compared to its neighbours - and indeed to the rest of the world - Poland is doing well. At the BPCC's annual conference in Warsaw last week, four chief economists presented their growth forecasts for this year and next which were as synchronised as an air display team in formation. This year growth will be between 0% and 1%, next year between 1% and 1.5%; a tighter bunch of forecasts than what we'd been used to (last autumn the spread between optimists and pessimists was as much as five percentage points). Bear in mind that Poland's neighbours in the CEE region are expecting their economies to contract by 3% to 15%. Indeed, a perusal of economic forecasts published by The Economist suggests that Poland's economy will grow faster than ANY in Europe - and globally, will only be outperformed by China, India and Pakistan.
Why has Poland managed to avoid the worst of the global downturn? One counterintuitative argument is that because Poland is a difficult place to do business, the size of the pre-crisis 'bubble' was relatively small. And a reason it was smaller than in western Europe and the USA - and indeed in other CEE economies - is that Poland's inflexible financial institutions were not bending over backwards to foist business loans and mortgages to people who could not afford to pay them back. More - banks would not lend to people who could afford to pay them back.
As a result, depending on sources, between 60% and 70% of Polish entrepreneurs have no debts, and finance their ongoing business activities from their cashflow. And while 800,000 Polish households (mostly young and urban) have risky mortgages denominated in Swiss francs, another 12,200,000 households don't.
Poland is ranked 76th in the World Bank's Doing Business survey. Drill down into the data, and you'll see that in see that in terms of 'ease of starting a business', Poland comes 145th in the world (out of 175 countries!) and 'ease of obtaining a construction permit', Poland comes 158th - which places it among the economies of sub-Saharan Africa. Other surveys are less kind. The latest Heritage Foundation/Wall Street Journal Index of Economic Freedom places Poland 82nd in the world.
Poland's obstructive and decision-averse bureaucracy has held back the country from growing at an unsustainable pace. But this 'handbrake-on economy' cannot be held back at this time of global recession. The handbrake must be released if jobs are to be created and the huge demographic potential of Poland's young and well-educated workforce is to be realised.
Twenty years of democratically elected governments (of all hues) have failed to transform a bureaucracy that remains anything but a 'civil' 'service'. Roads do not get built, state-owned enterprises do not get privatised, EU funds do not get spent - because of the mindset of lower- and middle-ranking officials in Poland's ministries and government agencies. Part of the problem is that many of them are political placemen, who get a cushy office job for four years through connections with the ruling party. These here-today-gone-tomorrow bureaucrats are not experts in the area they working - nor do they have any ambition to be. What Poland desperately needs is a thoroughgoing reform of its bureaucratic workings, rather like the one implemented in Britain over a century and half ago - the Northcote-Trevelyan* report which led to the establishment of a Civil Service Commission in 1855. This clearly set out the rules for a professional, apolitical administrative body to implement policies of elected governments.
(*Not to be confused with Northcote-Parkinson, whose adage 'work expands so as to fill the time available for its completion' was coined a century later. It is as true in Poland's government offices as anywhere else on earth)
UPDATE: February 2010. The final figures for Polish growth have been posted; the economy grew by 1.7%! Faster than anyone could have dared imagine.
This time last year:
Jeziorki in bloom
Visitors from the east
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3 comments:
With this diagnosis you hit 10!
finally a well-balanced overview of Polish economy in The Economist. Maybe our country still leaves a lot to be desired but looking in relative terms we may be proud (but of ourselves?). These forecasts look a bit gloomy, but nevertheless I truly believe we'll be one of the first to pull through.
To the Polish readers - downtrodden and harshly critisised Balcerowicz is once again praised by The Economist (although his name wasn't mentioned) - as Central Bank's governor he kept the interest high, by tight monetary policy not only did he curb the inflation, but also prevented, or rather postponed the bubble on real estate market. The lending creteria got finally loosed and to my mind we've had a kind of property bubble, within 2006 - 2007 property prices skyrocketed by around 100 per cent in main big cities. The burst was not so severe - prices remain rather stable and flats are hardly ever foreclosed, but now the business is slack and many developers (who had profit margins of 50%!!!) declare they might go bust. Borrowing terms were far cry from the ones in USA in the peak of their property bubble, but there were several banks ready to grant loans with monthly installment of 2.800 zł to the household having monthly income of 4.000 zł. If the banchmark of the bursting bubble is the number of foreclosures, then we got away with it.
ill-considered hedges - very nice euphemism for "pure speculation" in which the CFO's of companies played, claiming they were unaware of the possible losses their companies could incur - had they been deceived by banks - who's to know? However, we're the only coutnry in the region to tackle this problem - a disgraceful exception?
These 60 - 70 pre cent of companies financed by cashflow are usually SMEs with little or no access to loans or afraid of taking them out - might be the sound strategy...
An apt remark on bereaucracy - legacy of PRL. The best university graduates develop their carrers in private sectors, so the recruitment to state owned companies is based either on negative selection of the candidates (the better were hired somewhere else) or on connections. Everything is paralysed by the internal procuderes, it's not only that lower and middle officials have the certain approach to their job, probably they don't really care about the quality of their work, but the're given rather little responisibility - all decisions they take must be authorised by their superiors what makes the processes even more protracted.
For the substantial improvements we need to change not only our mindsets but way of perception of state institution - civil service should be perceived as a distinction not as a "cushy job", the same applies when it comes to politics - people who run for parliament set "making a pile" as the primary goal for the four-year term. Politics is no longer (has it ever been in Poland?) an occupation for experts - they'd rather kept away from the mire of tie-ups, connections, PR, mud-slinging, etc.
Good post, good comments. Agree entirely.
thanks!
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