There is no magic wand for the economy

Poland has created the organizations, procedures and processes of a modern state. By doing so it has bound itself permanently to the Western world. No great reforms will be needed in the future, only the ability to manage necessary changes, says former PM Jan Krzysztof Bielecki.
There is no magic wand for the economy

Jan Krzysztof Bielecki (Pics. PAP)

CE Financial Observer: What was the decisive factor in the Polish success of the last 25 years?

Jan Krzysztof Bielecki: Through a tumultuous process of political and economic reform we managed to create institutions in the behavioral sense, meaning: the organizations, procedures and processes of a contemporary state. Apart from privatization, this was the main cause for the success of Polish reforms.

Contrary to what many pundits believed, the turbulent development of the political scene in the first half of the 1990s was advantageous for Poland and its growth. The parliament became an actual battlefield of ideas for change. At the same time it was where explanations were offered as to why our movements were restricted. And it was the place where subsequent governments and political groups confirmed the fundamental goal of returning Poland to the institutions of the democratic West.

So the stability of a fixed objective for 25 years on the one hand, and the tumultuous changes of governments – in the Italian style rather than German – on the other. A bit like a fluid currency rate in the economy, which stabilizes it despite being flexible. Frequent political shifts were an automatic stabilizer, because they showed that the field of play was limited.

So the maturity of elites was crucial. But the elites are not the whole society.

Not just the elites – the entire society proved to be mature. The changes were big and inevitably caused frustration, but people made it clear over several elections that they knew there was no other way. Transformation became a grand process of learning, in which both those who governed and those being governed were students. The most important lesson was that there was no magic wand, no secret shortcut or single brilliant idea to rescue the Polish economy. And such prophets were in no short supply. Some claimed coal would save the economy, others pointed to agriculture. But there is no magic key.

Is the change that occurred in Poland irreversible?

Absolutely irreversible. Political and economic institutions are so well-developed that we are in permanent convergence with the Western world.

At the same time, however, as sociologist Janusz Czapiński or psychologist Jacek Santorski point out, we have very low levels of social trust. People are not so sure everything went well. Might they not wish to retreat?

The problem lies elsewhere. The lack of social trust is an element of a much wider issue of good education, in schools and corporations. Because corporations are also deficient. The management system is often outdated, almost feudal. This does not build the capacity to cooperate. And education should teach people to cooperate. This deficiency is the Polish cultural sin, and we must work on it.

Still, the example of Hungary shows that change in our part of Europe can be undone. The general sentiment shifted and the authorities began reversing previous reforms in such areas as energy and banking. Not to mention the independence of state institutions. And all this is popular, because the people who are doing this have just won their second election in a row.

I do not think Hungarians have turned their backs on the Western European family. They just believe one must optimize the advantages of being in that family. They are still efficient in acquiring EU funds, like those associated with financing the convergence program. They still benefit from unrestricted travel and capital transfers. Hungarians are not the only ones to be doing this: staying inside and pretending to be outside. The British have been practicing it for 20 years. This way both the people and the City are happy.

After 25 years we have – as you say – converged with the EU. But how much is still left to be done here?

In terms of per capita income we went from one-third to two-thirds of the EU average. The European Bank for Reconstruction and Development analyses this in detail in its annual Transition Report. In many aspects we have caught up with the rest of Europe. Where we still have some distance to cover is the wealth of our society and country. In this regard we are at 70 percent of the European level.

Simple reserves, of cheap labour for instance, are running low. Each new percentage point increase requires greater effort. So what’s next?

A competitive work force will remain an important and necessary factor of economic growth for many years. But to state it most plainly: what’s important is to increase the added value that we as a country and society are able to produce, and then there’s the crucial issue of increasing the capacity to compete with highly-processed products. This is obvious, but true – we need innovative products and methods.

There are at least a few areas where we are far from achieving real convergence with the EU, such as health care.

Health care is an area that is constantly being reformed everywhere, and one that nobody is ever satisfied with. Health care systems are being improved in almost every country, but those changes are seldom up to speed with technological development, which could allow doctors to work with increasing efficiency were it not for limited financial resources. In the US, just maintaining life support consumes more funds than the entire Polish health care system.

Will we ever solve this problem of crippled health care?

No reform will ever ensure unlimited care. It is a challenge for ethicists, rather than for modern medical technology. I think the problem will only grow in the future. The answer to the challenge requires people’s participation in public life, in political decision-making. Society must decide how much of the limited public resources it will allocate to health care. We must also consciously decide how much should depend on state responsibility and how much on each person’s concern for their health. As average life span grows the problem will intensify. First and foremost we must focus on prophylactic medicine.

Another serious challenge lies in the bad demographic forecasts. Are we practically helpless here as well?

Demographics are indeed unfavorable, but I do not think there will be a major catastrophe within the next 25 years, which is a frequently made threat. First of all, demographics can be slightly corrected through a different pro-family policy. Secondly, and this can be seen in Japan, a society getting older does not necessarily mean trouble for the economy. The number of Japanese citizens has been shrinking, but it turns out their economy is beginning to work well under those circumstances. Difficult manual labor is being carried out by robots and machines, and new sectors of the economy are growing that cater to the needs of seniors.

We have 25 years of reforms behinds us, but not all the changes went well, and sometimes we retreated. We spoke about health care, but criticism has also been expressed regarding administrative division and the effectiveness of education reform since employers complain about the skill levels of graduates. The open pension funds are disappearing. Do those experiences verify the way we think about reforms?

In Poland there is a myth of grand reforms that offer permanent solutions to problems. The history of the world shows clearly that there is no such thing as permanent reform, no solution that will last for decades. Apart, of course, from those that re-constitute basic rights, like in 1989. But those were not really reforms. That was a revolution.

What is needed after a revolution is a process of managing change, which should take place constantly, adjusting institutions to the situation at home, in Europe and on global markets. If, for instance, the telecommunications market is consolidated, resulting in there being only four large operators in Europe, then we should not stubbornly maintain that we must have five. The same goes for fuels. According to earlier agreements we have two petroleum companies, but competition between Orlen and Lotos is limited.

Just a few months ago we thought Poland’s geostrategic standing could change in a short period of time. Will this change accelerate the rate at which we catch up to other EU countries?

Our geostrategic position has not changed, let us not get carried away. What has changed is geopolitics. The new situation will probably – and that is good news for us – accelerate work on a common energy market within the EU. Events in the East will also affect the globalization process, from which even Russia is not free. Until now Russia has benefited from globalization, because it could sell its oil and gas everywhere and take advantage of foreign capital inflows.

But the same globalization may yet knock on Russia’s back door. Moscow may suffer on financial and capital markets, which will hinder its development. And it has to take part in the technology race, because in a few years it will be new technology that allows countries like Australia to become the new key exporters of LNG. Also, Russia cannot risk the West growing impatient with the crisis and making deals with new suppliers, such as Iran. We are witnessing a new chapter of the global game, but not a new game.

In light of the new situation, should Poland attempt to accelerate its accession into the euro zone? National Bank of Poland president Marek Belka is among those who have called for a debate on this issue.

The European zone must prove its raison d’être. When that happens I can imagine the push for deeper political integration resulting in Poland receiving the offer of joining the euro zone, but without the 2-year waiting period within ERM II. That principle no longer fits the current European reality. If we were to enter the euro zone through ERM II, the process would take years.

Interview by Krzysztof Bień

Jan Krzysztof Bielecki – former PM, a chairman of PM Donald Tusk’s Economic Council.

Jan Krzysztof Bielecki (Pics. PAP)

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