Poland’s neoliberal miracle?

Economists love Poland. The history of Poland since its “liberation from the Communist yoke” is often used as the case in point to show that, yes, neoliberalism works. Poland willingly underwent the “shock therapy” and with impressive results, this is the tale we constantly hear. Indeed, Poland’s economy grew significantly from 1989, without doubt thanks to a combination of economic liberalisation, integration with Europe and foreign investment. Poland did not become Switzerland or Sweden, but it became a lot richer than it was. But was it an economic miracle? The few times I have been to Poland I was impressed by the presence of the same global brands with offices and plants everywhere. Many giants like McKinsey or Microsoft seem to be doing a lot of offshoring to Poland for their backoffice menial jobs.

While looking at the data of economic development over the last twenty five or so years, I noticed a discrepancy between the overall growth of the total GDP and the salaries. At first, it looked like while the total quantity of goods and service produced and sold by the Polish economy went up increased six times between 1990 and 2015, salaries went up only four times, roughly from 1000 zloty to 4000 zloty gross a month. I was left wondering were this difference came from. When I asked some people I realized the sheer measure of distrust of the Polish people towards their government: nearly everyone I talked to seemed to attribute this discrepancy to government corruption or wasteful spending, in true neoliberal fashion. The Polish state, however, takes a smaller share of the economy than most of other European countries. I was not really satisfied with this explanation so I turned to professional economists for help.

Polish GDP from roughly 100 bn $ in 1990 to roughly 550 bn in 2015
Polish gross monthly salaries from 1000 zloty to 4000 zloty.

“One-third of the GDP increase can be attributed to income accruing to international investors from their foreign direct investment (FDI). However, without the FDI the GDP growth would not happen at all. Therefore, it would not be correct to say foreign investment robs the Polish people, but it allowed to improve production technology of the whole economy and not just the foreign firms through spill-overs. You know, in 1990 everything was produced using technology already obsolete in the 1970s. There was no alternative scenario for development without foreign capital and technology”, says Łukasz Goczek, a doctoral candidate at the University of Warsaw.

“Of course part of profits left the country” says economist Paweł Strawiński. “The most common way of privatisation was a sell plant to foreign investor. Some foreign firm just bought the whole market as in some sectors they created some sort of monopoly, a good example of that is car manufacturing. FIAT bought factories in Poland and when they got a troubles with strikes in Italy, they closed one here in Poland despite that in Poland they had lower labour costs and a newer auto model was being produced”.

But Prof. Marcin Bielecki adds: “One sees a clear pattern: share of labour compensation in GDP fell down over the early 2000s period, reaching a new, lower level. While it might be tempting to attribute this change to foreign firms taking profits out of country, I don’t think there is enough empirical support for this claim. If I had to take a guess, I would link this phenomenon with the structural changes in the Polish economy in expectation of EU accession, as many firms changed their profiles to better compete in the common market”.

The “animal spirits” of the Polish economy seem to be clearly much more optimistic that their counterparts in places like Italy, Spain or Portugal, but one question remains open: will the Polish economic bonanza last? Italy and Spain might be suffering but they are still richer than Poland and have established some global brands over many years, something that Poland, for all its miracolous economic boom, has yet failed to do. Even in the aftermath of economic crisis that almost paralized Europe but allegedly spared Poland, more than twenty five after the process of economic integration started, the divide between Western and Eastern Europe seems to be persistent. Will Poland ever catch up with the big economies of Western Europe or is it destined to be its low cost office?


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