Economic patriotism is not limited to buying Polish apples

The concept of economic patriotism should be broader than only the perspective of the consumer. It should mean supporting domestic economy at the macroeconomic level.
Economic patriotism is not limited to buying Polish apples

(TEDxKraków, CC BY-NC-ND)

There is a widespread belief that economic patriotism usually boils down to buying goods made by domestic companies. Aside from the fact that in today’s globalized world it isn’t always easy to determine which products are genuinely Polish – in this regard Poles are aided by initiatives such as the Pola smartphone app or the Polski Ślad project – we should also take a broader approach to the issue of patriotism in the field of the economy.

Breaking the theoretical paradigm

In the second half of the last century, many economists emphasized the importance of the market as the best tool for the allocation of resources in the economy. The role of the state in the process of market exchange was limited to providing the necessary infrastructure. Property – whether domestic or foreign – was supposed to be primarily private. This idea corresponded with a greater opening of many countries to international capital flows.

This way of thinking about the economy also had a strong influence on the transformation of the Polish economy after the fall of communism. The pro-market model clearly won in the confrontation with central planning and the widespread state-ownership of companies practiced in the countries of the communist bloc.

This position, however, became increasingly nuanced over the past two to three decades. The market was still supposed to play a central role in the economic process; however, it was now said that the market wasn’t enough to achieve rapid and sustainable growth. Some economists emphasized the role of institutions in economic development. Others pointed to the monopolistic trends in many markets and called for firmer intervention by the state. Since the outbreak of the financial crisis, this process has accelerated. People have started more openly discussing the risks associated with unhampered flows of capital. Criticism of development policies has also been raised.

In recent years, the economist Justin Yifu Lin has been one of the most important figures critically assessing the previous policy prescriptions aimed at helping less developed countries achieve convergence with the world’s wealthiest economies. In his work entitled New Structural Economics. A Framework for Rethinking Development and Policy Lin distinguishes between two main trends in thinking about development policy after the Second World War:

  • The first one (which dominated roughly until the 1970s) recommended Keynesian-inspired strong state intervention (primarily through expansive monetary and fiscal policies);
  • The second trend emphasized the importance of stability of the economic conditions and suggested a far-reaching withdrawal of the state from the economy.

Lin argues that developing countries that have been most successful did not apply in practice the recommendations of economists falling within these two trends. In his opinion, states that sought to actively control the process of economic convergence developed at the fastest rate. This active control was mainly based on soft tools, however, such as promoting innovation and creating adequate infrastructure for selected branches of industry, etc.

According to Lin, the key aspect in the catching-up process of the less economically developed countries is a change in the structure of their economies. They must systematically become more like the structures found in developed countries. This means that over time companies should appear in the economy that produce increasingly sophisticated and high-quality products, thereby generating higher added value. In this process the state should play the role of a coordinator at the macroeconomic level.

Broadly defined economic patriotism in practice

Lin’s approach to the issue of economic development of countries puts the main emphasis on companies. Climbing on the value chain is essential in the process of catching-up with the most-developed countries. In this approach it is obvious that buying products of domestic companies is of fundamental importance for the process of convergence.

In a recent interview, Jan Filip Staniłko, the Deputy Director of the Department of Innovation in the Ministry of Development, stated that for the benefit of the Polish economy, consumers should choose Polish products even if their quality is slightly lower than that of foreign goods.

However, within a development strategy defined in this way, the concept of economic patriotism may cover any activities in the field of economic policy which favor domestic companies. They could involve providing clear and fair taxation rules or regulations in general (which would, incidentally, also have a positive effect on foreign companies), but also building institutions facilitating the business activities of companies, e.g. development banks providing loans to support exports.

It seems that the awareness of working for a common goal within the framework of the national economy is more widespread in the most-developed countries than in the developing countries. The French and the Germans naturally prefer to buy mainly domestic products. The specific activities falling within the broadly defined concept of economic patriotism often differ between individual countries, however.

For many years Germans have placed strong emphasis on building institutions supporting domestic enterprises, often including smaller companies. In this context we should mention, for example, the German development bank Kreditanstalt für Wiederaufbau (KfW), which played a significant role in the process of rebuilding the country after the war, providing financing to companies that were unable to get access to bank loans, and which to this day complements the offer of commercial financial institutions. In Northern Italy the close cooperation of family-owned companies played a major role in the growth of the region’s economic potential. France is carefully guarding access to the biggest strategically important companies from foreign capital. The economic policy in South Korea is heavily focused on the promotion of national champions. Additionally, numerous countries pursue policies which are not openly discussed. For example, they apply certain requirements for bidders in public tenders which enable the local, smaller companies to win.

In Poland Prime Minister Minister Mateusz Morawiecki doesn’t hide his inspiration with Lin’s theories. The clear turn towards the idea of economic patriotism in the broader sense is visible. Looking at the actions taken by the new government so far Polish model of economic patriotism is a mixed model combining features of the German and Asian models. Poland placed great emphasis on the development of institutions supporting Polish companies (e.g. the Polish Development Fund), as well as building national champions.

We need moderation, but support is necessary

Opponents of an economic policy aimed at supporting domestic companies – who usually favor an unfettered free market – point out that economic patriotism is often the guise under which plain old protectionism is pursued. It cannot be denied that sometimes the actions of the public administration are simply aimed at the elimination of fair foreign competitors. Besides, the state should definitely know its limitations – not everything that seems to make sense in theory can be successfully put into practice.

On the other hand, we should keep in mind that many countries have an active policy of supporting domestic enterprises. In a confrontation with companies from these countries on the global markets, entrepreneurs deprived of state support are at a disadvantage from the very beginning.

(TEDxKraków, CC BY-NC-ND)

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