Wednesday, 24 April 2013

Kaczyński's ignorance, deceit or folly?

I chanced across an interview with opposition leader Jarosław Kaczyński in Monday's Polska The Times, and found myself angered by two paragraphs about the economy, which I feel I need to comment. Here's the original Polish text, below:
Sytuacja w kraju jest w niewielkim tylko stopniu związanym z kryzysem międzynarodowym. Stan naszej gospodarki to jest efekt wyjątkowo złego sposobu rządzenia. Tak fatalnego, jak po roku 1989, jeszcze w Polsce nie było.
I'll translate as faithfully as possible into English (please offer improvements if you feel they are needed)...
"The situation in the country is only to a small degree linked to the international crisis. The condition of our economy is the result of extremely poor governance. So awful, as has not been seen in Poland since 1989."
What I find galling in this quote is the selectiveness of memory, the poor understanding of cause and effect in economics, and above all - the crass populism of the fellow.

Having sat through dozens of macroeconomic presentations by renowned economists, I can tell Mr Kaczyński that it would be a complete oddball, an absolute outlier - a crank indeed - who would categorically state that Poland's current economic slowdown has little to do with the global financial crisis. Though Poland's large domestic market insulates its economy better than smaller countries with a larger share of GDP generated by exports, Polish manufacturing sector is strongly dependent on the condition of European markets.

If we look at a country that Mr Kaczyński considers to be properly governed - Hungary - we will see that economic conditions are worse than in Poland. (Latest published data used; unemployment measure here is from Eurostat, which strips out the economically active who claim jobless benefits and is more comparable between the two countries.)

GDP growth Unemployment Inflation
Poland +1.1% (Q4 2012) 10.6% (Feb '13, Eurostat) 2.1% (Mar '13)
Hungary -4.7% (Q4 2012) 11.2% (Jan '13, Eurostat) 4.0% (Feb '13)

The situation in Poland is indeed the worst it's been for many years, but certainly not the worst since 1989. Let's track these three key indicators to previous low points in Poland's post-transformation economic history...

GDP growth Unemployment Inflation
Q1 2013 +1.1% (Q4 2012) 10.6% (Feb '13, Eurostat) 2.1% (Mar '13)
Q3 2002 +1.6% (Q3 2002) 20.2% (Aug '02, Eurostat) 2.8% (Aug '02, Eurostat)
Q1 1991 -7.0% (Q4 '91, GUS) 12.2% (Dec '91,GUS) 60.4% (Dec '91, GUS)

Things have, on aggregate been far worse. As to charges of macroeconomic mismanagement - yes, there's now little doubt that that Poland's independent monetary policy committee had been too hawkish in bumping up base rates in 2011-2012, jacking them up by 125 basis points from January 2011 to May 2012 (high water mark: 4.75%). By how much a more dove-like approach to monetary policy might have boosted GDP growth is a moot point - BUT THE IMPORTANT THING IS THAT POLAND HAS AN INDEPENDENT CENTRAL BANK - unlike Hungary.

The economic situation is not comfortable. The current government has squandered many chances to use its popular mandate to make necessary reforms to the way the Polish state and administration functions. From poor infrastructure (despite last year's frantic pre-Euro dash) to inefficient government offices, things could have been done better.

But I doubt if PiS in power would have seen things through any better. The friends of the Big State, rozdawnictwo (redistribution) and micro-management of matters economic, PiS in power today would be falling over themselves to blame the global economic crisis for people's woes, much as their ideological brethren in Budapest are doing.

This time last year:
The British electrical plug and socket reigns supreme

This time two years ago:
Easter, and the end of Lent

This time three years ago:
That Icelandic volcano (anyone remember what it was called?)

This time four years ago:
Views of Historic Toruń

This time five years ago:
One swallow does not a summer make


Anonymous said...

Kaczynski is talking about the level of governance not about the economy. And he is right. Tusk's gov is the worst since 89.

Tusk's gov is lazy, corrupt, arrogant, ignorant and incompetent. What keeps Polish economy going are hard working Polish people and EU money, not Tusk.

And if you want to compare Poland to Hungary, do not forget how many uneployed Poles left the country already. 10.6% is a pretty shocking number in that regard...

AndrzejK said...

Anonymous. From memory Olszewski's was the worst premiership by far. Luckily Kaczynski was in power for only a small period of time to do any lasting damage to the country if you ignore the deep divisions between those who just get on with life and those who are comfortable with balming anyone other than themselves for their own relative failure. But hey Kaczynski is a past master at "wywracanie kota ogonem" - turning the cat upside down. Which is not to say that I am overly impressed by the current track record of the government. It's just that the alternative is too horrible to contemplate.

student SGH said...

Catching up! A brilliant posting!

I just wouldn't agree with you critical assessment of the monetary tightening pursued in 2011 - 2012. Jacking up interest rates was necessary to combat inflation and had little impact on economic growth. I consider these moves correct, while the scale of current monetary easing, despite record-low inflation, is for me excessive. But bear in mind my views on monetary policy have always been hawkish. I can't help it.

Hope you had an interesting debate this morning.

Marcin said...

Hi Michael,

In front of me, on my desk, lays: "Strategia finansów publicznych i rozwoju gospodarczego, Polska 2000-2010" ("The Public Finance Strategy and Economic Development, Poland 2000-2010"), dated June 1999, and prepared by the Minister's Council, the Ministry of Finance. I express to reminde the the Deputy Prime Minister, Minister of Finance and Chairman of the Economic Committee of the Minister's Council, was Mr Leszek Balcerowicz then.

And referring to the above Strategy, there are some of "uncertainties and threats" for the Strategy accomplishment. And there stays just as following:

"O niepewnościach i zagrożeniach niniejszy dokument wspomina przy okazji dyskusji o uwarunkowaniach zewnętrznych i wewnętrznych realizacji Strategii. W projekcji zaprezentowanej w załączonym dodatku zakłada się zmiany wzdłuż trendów, z pominięciem wpływu krótkookresowych zaburzeń zarówno po stronie popytowej, jak i podażowej. Ale nawet w odniesieniu do tych trendów niepewności dotyczą przyjętych założeń o wielkościach parametrów, takich jak współczynniki kapitałochłonności czy elastyczności cenowe i dochodowe na różnych rynkach. Parametry te były eliminowane w oparciu o instniejące dane za ostatnie kilka lat, ale takie estymacje obarczone są znacznym błędem. Najpoważniejsze niepewności i zagrozenia dla realizacji Strategii są jednak głównie innego rodzaju. W odniesieniu do czynników wewnętrznych dotyczą one głównie takich kwestii jak istnienie dostatecznie silnej woli kontynuowania niezbędnych reform ze strony elit politycznych oraz możliwość wystąpienia nadmiernie roszczeniowych żądań ze strony wpływowych grup społecznych. W odniesieniu do czynników zewnętrznych największe zagrożenie wydaje się być związane z możliwością opóźnień w kalendarzu wchodzenia Polski do gospodarczych struktur europejskich."

That's all. Just all on uncertainties and threat, making not mention, that all of that is completely mumbling and new-talks (nowomowa). Mind you translate that Balcerowiczian propaganda, please? I may assure you, that most (as not the all) of that Strategy was mistaken, faulty based on mumbling and new-talks propaganda.

To the most expert as Mr Balcerowicz was portrayed, there are no mentions ans assumes on rapidly incoming economic slump and even post-accession recession. Why? Just because "Washingtonian Consensus" governed then. No doubts, questions, reflection and alike.

toyah said...

I can't figure you out. Why are you doing this? Is it really so hard to admit: "Okay. I was wrong"?

tobiasz11 said...

Panie Michale,

Teraz juz mam pewnosc,jest Pan tylko zwyczajnym propagandysta.

Nie spodziewam sie odpowiedzi na moj komentarz bo zauwazylem,ze na komentarze w j.polskim nie zwykl Pan odpowiadac.

Bez pozdrowien.

Roman Taube

Alexander said...

Picking favourable numbers to prove their own points is just what two Harvard professors did.

Please add the economic situation from Euro countries that are doing exactly what Berlin/ Brussels orders them to do.
Yes I am talking about Spain, Greece, Cyprus, Portugal and HOLLAND.

Michael Dembinski said...

@ Alexander

My point is that Kaczyński is wrong to say that Poland's economy has never been so badly managed as it is today. Poland's not in the Eurozone - thank God - your point about Holland though is very pertinent.