Naive liberalism harms the economy

CEFinancialObserver.eu: You and two other entrepreneurs from the list of the 100 wealthiest Poles spoke in the debate on the development of Polish businesses during the economic forum in Krynica Górska. I was surprised to see how similar-sounding your messages were. You argue that Poland has gone too far in deregulating the economy, failing to provide due cover for its own entrepreneurs. In saying this, weren’t you gentlemen driven by self-interest?

Krzysztof Domarecki: The opinions we offered are thoroughly sincere and carefully considered. The debate about economic development in Poland is not about whether we have a free market or not. The point is that in terms of competition, there is no level playing field in Europe, the USA or, generally, in the world. While access to the Polish market is unrestricted for foreign players, other countries – the USA, Germany or France – have tariff and non-tariff barriers to entry to their markets. So what we are facing is a one-sided opening to competition which is unfavourable to us. Foreign companies enjoy better prospects of growth than Polish ones, which do not receive such protection.

Should we limit competition faced by Polish firms from foreign ones with legal means?

It’s not about legislation; it’s about practice, about economic patriotism, if you will. Unfortunately, to most Polish politicians of any description “economic patriotism” is an alien idea. In the eyes of government administration, providing aid for entrepreneurs entails the risk of entering into corrupt dealings, so – just in case – it does not help at all. Naïve liberalism is the faith in Poland. Let me give you a simple example. In most Western European countries, companies may negotiate tax rates at their local tax offices. In Poland it is still unthinkable.

Unless you are an international corporation for which the government will create special economic zones.

Exactly. So how can we even talk about equal conditions for competition?

That is true, but does this mean that we have to raise more barriers? Perhaps we should do away with the existing ones?

But how can you deal with barriers which are set up in Germany? By issuing statements and appeals? It could take you a century and meanwhile you will have lost everything. How will you tackle barriers in France or the States? By waving flags around, by creating the alterglobalist movement? We should focus on supporting businesses in the Polish market instead.

You seem to have adopted a rather controversial assumption that protectionism actually helps instead of hurting the economy of the countries which apply it. Let’s take Iran, which, being the object of various economic sanctions, has to get by on its own. Do you know that over 200 planes have crashed there in the last 25 years, causing almost 2 thousand deaths? The reason is that the Iranians build their own planes, drawing on the obsolete Soviet and Ukrainian technologies. If there are any Boeings flying there, they are old, poorly maintained models. And you would still ban competition?

No! I am not saying that competition should be restricted. Rather, it should be protected! However, try winning a tender in Germany. They are set up in such a manner so as to give the greatest chance to German firms. I am not saying that our competitors should be restrained with legal barriers, but just look again at Germany – there are no legal barriers there, you can participate in the tender, you can sell – only nobody will buy from you anyway. Look at Fakro, Ryszard Florek’s company, and how the competition combats it in the West, using all protectionist means available in a given country. It’s the best illustration of what I am talking about. If Polish entrepreneurs draw attention to the problem, they do so as professionals creating real value and telling true stories.

Let me stress again: I am not a fan of protectionism, but we have to realize that if our imagination gets carried away too much with liberalism, we will do ourselves any favours, instead we will do ourselves harm. By abolishing all the barriers 25 years ago, Poland slowed down the growth of its own business. Who has been affected by it? The employees, the firms and the state.

So 25 years ago we could have made a better transition from socialism to capitalism?

If I had been in charge of privatising Polish industry, I would have sold the state-own enterprises to Polish entrepreneurs on credit repayable over 20 years. Instead, many Polish firms were simply ploughed into the ground or sold to Western concerns for less than 10% of their value. As a result, not many large companies are based in Poland. People who don’t live off capital can feel how it affects their incomes. If firms such as brothers Jerzy and Adam Krzanowskis’ Nowy Styl or Michał Sołowow’s Synthos, have head offices in Poland, they employ here the whole of the head office staff, marketing people, R&D people, and finance people. Thus they create high value-added, well paid jobs; they add to human capital. If, instead of a head office we have a processing plant of a Western corporation, there are no marketing or R&D functions; there are only manual and technical jobs. The excessive number of such plants in Poland is exactly the effect of too much deregulation. We have one Synthos, one Fakro, while we could have had dozens of such firms.

Too much or too rapid deregulation?

And lasting too long. I regularly compare the structure of the workforce in companies in Poland and Western Europe and I see this vast gap and how slowly it is narrowing. Other people can see it too, so they leave the country.

You have set up a foundation which aims to track down these emigrants and help Polish companies which will hire them in their cross-border expansion. Is it the only way to preserve the link between the emigrants and our country with its economy?

For the past 200 years, most great emigration waves – regardless of who emigrated and where, the Irish, Italians, the Poles – have not returned to their homeland. There is considerable risk that the 2 million Poles who have recently left the country will not return. These people have already settled down there, their children at best speak Polish with difficulty, are growing up in that environment and ultimately preventing their parents from going back – so these people will stay there. On the other hand, the ambitions of Polish companies are growing. These companies should be made aware that there are plenty of young Polish people outside Poland willing to work. Why should they work as dishwashers if they could be managers, technical advisors, or assistants introducing Polish firms to new markets that are familiar to them? By employing a Pole in a foreign subsidiary, one that already resides in the country, the Polish firm will overcome the barrier of ignorance of the local environment.

How does associating firms and Polish emigrants look in practice?

We have launched a portal which is a meeting point for companies seeking employees and people seeking jobs.

Why would a Pole living in, say, the UK, seek employment in a Polish company? Isn’t that what he has tried to avoid?

If he finds a job in a foreign company, let him grab it. However, for every Pole who succeeds in it, there are 30 who will fail. For those people, working for a Polish company is a chance for a better start or career development.

Yet one could wonder: Polish companies failed to offer attractive pay or career paths, thus forcing Poles out of the country, and now they are pretending that they are concerned with their lot.

And I think this is a picture of Polish businesses which was valid 15 years ago. I realise part of the public still thinks of Polish companies in these terms. Yet in fact, the companies that have expanded into foreign markets have become fully professional. They give due attention to the career paths of their staff and seek to foster their employees’ loyalty. So there has been considerable progress. On the other hand, we should always keep in mind that Polish business has been developing for a mere 25 years, while Western companies can boast a track record of 60, 80 or even 140 years of operation. We still have a lot to make up.

Attracting Poles from abroad makes sense in terms of business, not charity. If there are graduates in economics, political science, maths or physics working in the UK or Spain on a construction site or washing dishes, then obviously those people have not found jobs commensurate with their ambitions. Let us remember that youth unemployment in the West is high, ranging from 20% in France to 50% in Spain. We give these Poles on dishwashing stands or construction sites a chance for real professional growth, while for our part we are gaining experts conversant with a given market.

In Poland there are also many people out of work…

Polish companies have something to offer to Poles living in Poland, yet something different from what they offer to Poles from abroad. If you live in Poland, you don’t know the British or German market. You have always lived here and you don’t speak the language as well as somebody who has graduated in Germany and has been living there for a number of years. The operating cost of training and dispatching an employee abroad are higher than the cost of recruiting someone who already lives there. Obviously, being Polish should not automatically provide employment in a foreign subsidiary of a Polish firm – since everybody has to complete a normal recruitment process – but out of two people with similar qualifications, I will choose a Pole.

Has your company hired anyone in this manner?

Selena has been hiring Poles in various countries of the world for 15 years and we want to persuade other firms to follow our example, as in doing so they get a chance to speed up their international expansion. Interest in our portal is growing from one week to the next. There are more and more ads as well as emigrants viewing them from a growing number of countries. We could call it the first step to success.

Interviewer: Sebastian Stodolak

Krzysztof Domarecki – lawyer and businessman. He established and is Chairman of the Board of Selena SA, one of the biggest producers of construction chemicals in the world.