Poland: “What Are These People Complaining About?”

by Barkley Rosser

Poland: “What Are These People Complaining About?”

Thus spake Jeffrey Sachs in January 1994 at the ASSA/AEA meetings shortly after the Solidarity government of Lech Walesa was defeated in an election over plans to cut old age pensions, which Sachs thought were too high. He has since recanted some of his views from that time, but indeed Poland had been the poster boy for the Washington Consensus on transition, with its “shock therapy” approach of sudden change that looked like it was doing well.  Poland had sharply reduced inflation from triple to single digits and after a 7% GDP decline in 1990 had turned to positive growth before any other transition economy and was growing impressively with sharply falling unemployment.  What were these people complaining about?

This parallels more recent developments.  Poland was the only European nation not to fall into recession in 2009, able to devalue its zloty as not in the Eurozone and able to continue exporting to strong neighbor Germany.  Its unemployment rate has remained fairly low and its poverty rate falling and below that of the US.  Yet in 2015 the Civic Platform party was ousted by the Law and Justice Party, which has since taken to shutting down free press and judiciary and otherwise engaging in general demagogic and populist authoritarianism along with hyper-nationalism.  Well, thank the Civic Platform raising the retirement age for those large pensions back in 2012, which the Law and Justice Party hammered them on hard.  Part of why Poland has done well has been that indeed it has not undone its social safety net inherited from the communist period, even as so many outsiders and insiders have said they should do, including at some points the mastermind of shock therapy and the finance minister who put it in place, Leszek Balcerowicz.

Poland’s problem looks like that of most of the transition economies, especially given that indeed it has been one of the best performing of them, still a poster boy of “successful transition.”  As a group  they were catching up to Western Europe during prior to the Great Recession, but since then have not been doing so, falling back if anything, although less so for Poland.  Indeed, if one compares the ranking of European nations by real per capita income a quarter of a century ago with today it is amazingly stable, very little change.  There have been a handful of large movers,  Ireland zooming from not all that well off to, yes, second place now behind only Luxembourg, and Albania moving from dead last to ahead of five others at the bottom, while Ukraine has fallen hard down to second from the bottom, ahead of only Moldova, and Greece falling hard, although still above all but two of the transition nations.  The change of perspective can be seen in that while Poland may have in the past compared itself to neighboring Ukraine, now it compares itself to Germany and the UK, and indeed the “Polish plumber” is the iconic immigrant to UK that helped drive the Brexit vote there.

I note some details about the Polish transition not all that widely known. I heard about the original plan from Leszek Balcerowicz back in 1988 when he was traveling around the US promoting it.  At the time I did  not take it  all that seriously as it was far from obvious that the  Communist government would be replaced the following year and Balcerowicz would be in a position to implement his plan.  But, while he would change his position later, at the time a part not widely remembered but implemented was that privatization would occur slowly.  Indeed, even today Poland has one of the highest rates of state ownership of enterprises of any of the transition nations, quite in contrast with its image.  At the time much of this was nationalistic, fear of Germans in particular coming in and taking over the economy.  But it prevented corrupt and inefficient privatizations as occurred in many other such nations, such as Russia.

I close this by noting that I am in Warsaw right now, and observing that indeed the economy does seem to be mostly operating pretty well on the surface, despite this underlying unhappiness about being behind other nations.  But part of the appeal of the nationalistic  and populist Law and Justice Party has been that Poland has suffered in the past from outside nations, partitioned in the late 1700s by Russia, Prussia, and Austria for over  a century, and then conquered by Nazi Germany and then by Communist Russia/USSR with little support from outsiders.  Their paranoia is not entirely unjustified, even if right now it does not seem that they are being threatened all that much by others, and the conspiracy mongering over the 2010 plane crash that killed then President and Law and Justice Party leader, Lech Kaczynski is being overdone, especially with his twin brother, Jaroslaw effectively running the party.  Nevertheless, they look to have more reason for hysterical and paranoid behavior than some other nations currently engaging in extreme nationalism and hysteria, with the US under Trump probably the outstanding and most egregious example.

Barkley Rosser