Inequality and wealth - the Polish perspective

If inequality in the UK has been rising, in Poland it has been falling. Unemployment in Poland has dropped (by the Eurostat measure of economically inactive) from 18.9% in May 2004, the highest in the EU, to 3.2% in November 2019, the third-lowest in the EU. Wage rates have been rising faster than inflation (chart below shows that average wages in the Polish private sector have grown by 207% since 2004, while consumer prices have risen by 139%). Things are getting, on average, better.

Inequality, as expressed by the Gini coefficient, has fallen. In 2018, Poland had the ninth-lowest inequality of income in the EU at 0.278 (on the scale where 0 = perfect equality and 1 = one person has it all). In 2011, Poland was in 17th place in the EU, with a Gini coefficient of 0.311. Meanwhile, in the UK, inequality has been rising over this same period, slipping from 21st place in 2011, at 0.330, to 24th place at 0.342 in 2018.

Communism gave Poland uravnilovka - the concept of making society equal by levelling down. An intense class war was waged by the Soviet communist proxies running Poland in Stalinist years to rid the country of the aristocracy, the bourgeoisie, the intelligentsia from positions of power within the state. An entire ministry where the only person with a degree was the janitor. If your hands weren't calloused by years of physical labour you were deemed a class enemy and held back from promotion. The result was a society in which tram drivers and university lecturers lived cheek-by-jowl in the same overcrowded tenements, and czy się stoi czy się leży, dwa tysiące się należy - pretty much near-equality of pay across the economy.

Things changed on 1 January 1990. The Balcerowicz plan came into effect - total, sudden, deregulation. Currency exchange controls, import controls, restrictions on setting up businesses - swept away. You could get in a train, go to West Berlin, buy bananas and sell them on a Warsaw street corner for the equivalent of a week's wages per kilo. Entrepreneurial Poles - of whom there were many - found niches and built good businesses very quickly. Drive to Vienna, buy a van-load of aquarium fish-food and corner that market. Less-driven Poles, of whom there were also many, complained that state-sponsored arts were being cut or that the Jews were taking over. Within a few years, the blocks of flats where professors neighboured tram drivers suddenly had guarded car parks with new Audis standing next to battered Fiat 126Ps. Those with the crap cars found it easier to say that the owners of the new cars had made their money by theft or corruption than by admitting that their neighbours worked 12-hour days running shops or warehouses or transport businesses while they watched Brazilian soap operas.

Poland is still on the receiving end of the benefits of globalisation. Jobs of ever-increasing sophistication are moved here from Western Europe and the US. Having been here for 22 years, I have observed the process accelerating; once it was basic handsarbeit, moved east from Germany for cost reasons.

We used to see the relocation of poorly-paid work to Poland. That's while the country was in the throes of the first wave of globalisation. Today we're seeing the relocation of better-paid work to Poland.

Many years ago, I visited a medium-sized factory in western Poland that made hinges for a large Germany manufacturer of doors and windows, its only customer. Around 70 workers in three buildings, bending strips of metal and drilling holes in them. Dwarfing the buildings was an enormous warehouse used to store raw materials and finished pieces. Much cheaper than keeping stock in Germany.

These days, the manufacturers I visit across Poland make bits that go into aircraft engines; high technology work with advanced materials, where many on the shop floor hold Master's degrees in engineering. Delivery of raw materials and collection of finished pieces is done just-in-time; the latest managerial techniques are in use to ensure continual improvement, quality and work-flow management. More and more robots are in evidence, connected to one another in an intelligent network.

Poland finds itself increasingly integrated into global supply chains. EU-funded infrastructure projects have improved transport links within the country greatly (as this blog testifies). Labour costs are no longer seven times lower than in the UK, as they were when I moved here, but around half (and one-third those in London). That's still a big enough difference to make relocation to Poland worthwhile.

Banks are setting up sophisticated quantitative analytics centres in Poland; large corporates are moving financial and IT hubs to Poland from which they service their European, EMEA or global networks. Engineering firms and architectural practices are shifting project work here; they do little work for Poland, but their Polish-based design bureaus work on projects in the Middle East, Africa or beyond.

This squares with Douglas McWilliams' forecast that for some time to come, the biggest hit to their earnings will be taken by those in the West who are neither poor nor rich, those between the 35th and 70th centile in the income distribution curve. More of their jobs will move to countries to Poland for some while yet, until convergence with the West has risen to the point where locational arbitrage makes no further sense.

If globalisation has made the poorer British citizens poorer, it has made most Poles better off, and it has - so far - had a positive effect on the economy and society.

A factor that should not be ignored in the story of falling Polish inequality is the introduction of EU agricultural transfers post 2004, which have helped reduce the income gap between urban and rural Poland.

Poles tend to be more careful with their money. Their history has seen successive invasions, partitions, uprisings - one generation's wealth has often been wiped out by wars - or, in the case of 1989 and 1990 - inflation, reaching 800%. And then the whole process of wealth creation begins again, with a new generation. I'd argue that this is why many see the purchase of real estate as a hedge against turmoil - you own the house, the land, it's registered in the 'eternal book' (księga wieczysta, as the land and mortgage register is called). After 1990, many of the children whose properties were seized by communist governments successfully claimed them back. But cash savings were devoured by inflation.

A final summing up of this series here.

This time four years ago:
Work on rail modernisation, Jeziorki

This time six years ago:
In which I get started on Twitter

This time seven years ago:
London Underground is 150 years old

This time eight years ago:
My enemy's enemy is my...?

This time nine years ago:
Some thoughts upon the Nature of Warfare

This time ten years ago:
Snow so deep it needs a plough

This time 11 years ago:
A fieldfare in midwinter