Saturday, December 23, 2017

The Poland Problem: How A Good Economy Does Not Guarantee A Good Politics

This is personal and professional.  My wife and I have the third edition of our comparative economics textbook now in press at MIT Press.  We have chapters on transition economies, and one is on  the Polish economy.  The standard story is that Poland has been the great success story of transition (now accepted to be over pretty much everywhere for awhile now).  It adopted largely western market capitalist institutions successfully, while avoiding mistakes made by other transition economies.  It avoided dismantling its social safety net.  It was careful about privatizing state-owned enterprises, and in fact continues to have a higher percentage of its output run by them compared to most other such economies, with this tied to its lower rate of corruption than many of them.  While it joined the EU, it avoided giving up its currency, which allowed it to devalue and preserve economic growth even as EU nations fell into recession.

Indeed, the ultimate economic success of Poland came during the Great Recession when it was the only nation that did not go into recession at all, steadily growing even through the pit of 2009.  It was the first Soviet bloc transition nation to come out of its transition recession, with a reasonably functioning parliamentary democracy, and it has outperformed all the rest economically.  In 2007, its president, Lech Kaczynski of the conservative Law and Justice Party, signed the Lisbon Treaty, which allows the EU to enforce judicial independence and other features of western democracy.  Later he would die in a plane crash in Russia, which led to his twin brother, the party's current leader to formulate conspiracy theories that Russia was behind the crash.  A souring of attitudes came over the party as it went into a period out of power.  But Poland would become one of the most respected members of the EU, with a former president, Donald Tusk, now an EU leader.

On returning to power the Law and Justice party has followed a new track, obsessed by conspiracy theories, it has turned against Russians, Muslims, and Jews, but loves Donald Trump as well as the also neo-authoritarian regime of Victor Orban in Hungary (who is pro-Russia in contrast with the Poles).  Both now thumb their noses at the EU and its rules.  The latest for Poland is a new law that allows the government to remove half the judges and otherwise take firm control of the judicial system in a way violating Section 7 of the Lisbon Treaty.  The EU has formally condemned this move under the treaty, with tis setting up a possible loss of voting rights in the EU for Poland.  But the government seems not to care and is more committed to pursuing its nationalistic and authoritarian policies.

An irony of the current situation is that one of the politicians driving the changes. Stanislaw Piotrowicz, was a prosecutor during the period of Communist rule prior to 1989 who helped put dissidents in jail.  The irony here is the extreme anti-communism of the Law and Justice party.

What is mysterious is that there is not some obvious economic crisis or problem that is driving this "populist" political trend.  Again, economic inequality is not high and corruption is low.  The unemployment rate could be lower, but the economy has seen much growth reasonably well distributed, and it is broadly stable without inflation or major control by foreigners, even the hated German neighbors.

That said, one subtle issue of economics may be playing into this, even if it still seems to be secondary.  Moving out of the Soviet bloc into the EU has changed the frame of reference.  Whereas preciously the Poles could see themselves as better off economically than the politically dominating Soviets.  Now they compare themselves to higher income Germany, France, and the UK.  Indeed, an irony of the UK Brexit movement is that a motivating element in it has been anger over immigrant "Polish plumbers" supposedly undercutting good local Brits in the job market. The Poles are going elsewhere than Poland to better themselves economically, and this may well provide a backdrop that supports the current dark political trend.

Barkley Rosser


Bruce Wilder said...

Thank you for a thoughtful comment.

I expect frame of reference, as you say, is a factor.

Collective historical memory is such that Poland's present prosperity is attributed by its people in large part to the historically unusual absence of Russian or German pillage -- such pillage being a dominating factor in Poland's political economy for centuries. Given that this factor is a prime mover behind or beyond almost everyone's imaginative construction of economic policy cause-and-effect, any political party that seems to take on the defense of Polish national interests and solidarity as a core mission is going to have some presumptive claim to legitimacy.

Overall, as you say, Poland was remarkably successful in its transition -- no oligarchs, good policy response to the GFC of 2008, etc. But, that was then and this is now. Some features of the Polish experience today are surely worth highlighting as relevant.

Roughly, Polish and Russian GDP (PPP) per capita are equivalent today*. If such a statistic can be accepted as a rough indicator, the Polish standard of living is no longer dramatically higher. And, Polish prosperity, such as it is, has been achieved by maintaining a low domestic price level and balancing a large current account deficit with remittances, borrowing, foreign investment and depressed gross saving. The low domestic price level and the devalued state of the currency ought to make Poland an export powerhouse, but exports basically balance imports. The Pole at home is earning Russian wages and his brother in the UK is earning UK wages; his local standard of living is tolerable only because everyone he trades services and domestically produced goods with is just as screwed as he is. This sort of low-wage, low-exchange-rate economy is a neoliberal desideratum because it nurtures many opportunities for predatory financialization. But, it probably doesn't feel good anywhere near the middle let alone at the bottom, nor hopeful on trend any more. A fair number of people are still on the farm and poverty rates are not great for a developed country. Professionals in urban areas that do well enough may be happy, but the low domestic price level is going to press down on more rural areas.

Maybe a neoliberal left simply lacks credibility among the working classes they so famously deplore? Has Polish neoliberalism had no conspicuous failures? That would be strange and unusual given that neoliberalism aims for calculated failure. Donald Tusk seems a capable politician, but his economic ideology is poisonous. I presume the socialist left collapsed into the neoliberal centre-left in Poland as elsewhere; during the period of neoliberal centre-left dominance, what was accomplished that might produce a reaction? said...


Regarding the comparison with Russia, inequality in Russia is much greater than in Poland, and also the social safety net is much smaller. So even though average incomes look similar, I am sure the median is higher in Poland, and the average person in Poland is substantially better off than the average person in Russia.

Dave said...

Hilariously, Polish stats pre-2016 on economic growth simply cannot be trusted, so I hope to God Rosser doesn't rely on them! About 1.7% of Polish economic growth was predicated on fake exports, which existed on paper for the purpose of tax frauds.
The Polish poster boy success in terms of avoiding recession was matched only by Greece's. I jest not. Two million emigrated - to the consternation of all economists. Surely Polish workers would't take the drastic step of fleeing ever-increasing prosperity??!
Moreover, the Polish economy is 2/3 foreign-owned (see Picketty), thus everything about Poland is skewed. This didn't happen by accident - it was a direct consequence of the infamous Sachs-Lipton Plan, which incidentally pointedly refused to envisage the state returning property stolen under the Communist tyranny. So you could call that both virulently anti-Polish and anti-Semitic.
The Ruskis loved it so much in 1990 they decided to copy the scheme - but with more oligarchs and far fewer foreigners. Of course, the oligarch who had FSB backing beat the other oligarchs.
Fortunately, democracy is triumphing in Poland now - as the people have had enough of foreign companies repatriating profits and Polish criminals evading tax. Billions have appeared in state coffers out of 'nowhere' despite vastly higher spending. Poverty has receded dramatically in just two short years, as the poor-haters are out of power.
Foreigners can't understand why Poles want to invest in grand infrastructure plans, have a balanced budget and economic growth that delivers jobs instead of emigration pressures!! You simply have to laugh at economists who are thinking up ever more bizarre reasons as to why Poles are voting for boosting wealth.
And above all, no foreigner can understand why Poland wants to Decommunize!! I mean, what's wrong with having a Communist husband-and-wife team heading the top courts?? said...

Ah, Dave, aka "Varsovian," Welcome to Econospeak.

Your claim that Greece did not go into recession is rank nonsense. It was in recession for most of the past decade, only just getting out last year or so.

Prosperity has been steadily increasing in Poland, but as I noted in the post it is still well below that of higher income western European nations. So, yes, Polish workers have been leaving for greener pastures even as prosperity has increased at home. There is nothing ridiculous about this at all.

I have been unable to find a Piketty source on degree of foreign ownership in Poland. It is high in certain sectors, most notably banking, but much lower in others with restrictions never removed on it for certain sectors, most notably agricultural land. But so what? Much of that fdi has brought modern technology. It is not all bad.

It also has nothing to do with whatever have been policies about returning property to previous owners, an issue you are clearly very worked up about. Is this personal? Does your family claim ownership of property they were not given? I have seen nobody other than you complaining about this, but you have this as the biggest horror story of Poland. Sorry, I am not impressed.

Your democracy triumphing is a matter of a party that got only about a third of the vote but got in thanks to splits among its opponents. Since getting in it has been suppressing press freedom and judicial independence, the issuw Poland is now in trouble with the rest of the EU over. You make no mention of this preferring to make yourself look like an idiotic Joe McCarthy with your anti-communist ranting, which is the sort of sickness that has the current government obsessed and making a complete fool of itself with the rest of the world except maybe Donald Trump.

A rather important point is that you praise the pro-social welfare program of the current government, and I noted that as a positive, probably the only positive coming from it. But you must understand that the social welfare program is a holdover of the old communist regime, even if the Catholic Church is pushing the child support plan. As far back as 1994 I criticized Sachs for supporting cutting back pensions, and I and my wife were the first people to recognize that maintaining the social safety net helped limit the underground economy and maintain political and social stability in transition economies, and especially in Poland. Check it out, "Dave."

Dave said...

Hi - despite the fact all my experience shouts at me that I'm wasting my time, I'll give it one last shot at putting doubt into your mind. - who's not in recession ...?
Tusk was claiming 0.8% growth when 1.7% of its growth came from its worldbeating cellphone exports ... which didn't actually take place! Greece too was claiming growth ... - The Polish transition that Jeffrey Sachs planned ... excluding property restitution for Poles and Jews alike.
Mass evictions in Warsaw - and the Jola Brzeska murder the world media didn't know about because it gets its news from the murderers' friends. - read between the lines - Poland wasn't interested in stopping fraud before.
Catholic Church - it didn't come up with the child benefit program, so I don't know what your point is. It's certainly in favor of it. Liberals were violently opposed to spending money on child benefit - which is why Poland was very much on a par with Romania and Bulgaria in the hate-the-poor stakes.
If you haven't picked up on the property restitution issue, then you'd better catch up on teh biggest story unreported outside of Poland. The Guardian did a good article on it. Norman Davies' son, Christian.
The story is huge. Ultimately a newspaper called Gazeta Wyborcza supplies most of your Polish stories and they find the story disturbing - as it strikes at the heart of the foul Sachs plan ... which was actually typed up in Polish in the offices of Gazeta Wyborcza.
The latest set of property frauds run into at least the hundreds of millions of dollars in Warsaw alone, but since 1989 we're talking billions of dollars. The fact you don't know is because you have to rely on English language news and articles. Try to find a hit on Jola Brzeska's murder in English in 2011, the year of her death. There's one - by an anarchist group. English language news blackout.
Communist rantings - hmmm - You'll need to rely on Google translate to understand just how attractive the Polish "solution" was for Russia's Communists. Nothing - absolutely nothing is written on this in English - because it would be rejected out of hand in the same way as you have rejected it. Our main media man Adam Michnik - perfect Commie family for instance and has supported Communist causes consistently, but the world's media would call him a "Liberal" ... Look up his brother Stefan though. A string 'em up (untrained) judge for Stalin. But I'm wasting my time. Nothing I could say would sway your belief in the cause of keeping Poles poor and in a vassal role. Or Hungarians, or Romanians for that matter. said...

My wife and coauthor knows Polish.
You like to cite articles by Bershidsky, but his nonsensical remarks on Greece are a sign of how seriously unreliable he is.
I never said there has been no corruption in Poland, just that it has not been as bad as in many neighboring nations like Russia. Best evidence suggests that corruption levels rose from the mid-90s to a peak around 2005, but has steadily declined since.
Funny you suggest looking at the Guardian article on "reprivatization chaos," not remotely what you suggested it would be. The "chaos" is tenants being tossed unceremoniously onto the streets when their buildings get turned over to heirs of owners from the 1940s. There has been a steady and gradual flow of these reprivatizations since 1989. You want to blame tenants being thrown onto the streets in 2017 on Jeff Sachs? That is not what is in the article. Are you out of your effing mind wirh rhis drivel and crap?
I also find it weird that you for no obvious reason go after Adam Michnik, a "Liberal" you call a "Commie" because supposedly his brother was a Stalinist judge (sorry, have not checked on his brother). The weirdness is that Michnik is probably the most prominent public figure in Poland who is Jewish, but you deny vigorously that the new government you worship is snit-Semitic.
Oh, and my point on the social welfare programs, which you seem to have completely missed, is that these programs are largely holdovers from the Communist era, although you simply drool with your anti-Communist ravings, even as you say how great it is that the current super anti-Communist government supports the social safety net, which I have said I agree with (and the Catholic Church also supports it).

Peter T said...

One largely unremarked feature of the transition economies, successful or otherwise, is their inability to support populations at the previous level. Poland's population has fallen slightly, Ukraine's a lot, the Baltics seriously. Russia is growing again, but the crash was only mitigated by in-migration from Central Asia and the Caucasus (the former lost a lot of technical expertise).

What would per capita stats look like adjusted for this? said...

Peter T.,

Poland is way ahead of where it was per capita and aggregate, although a lot of people have "fled" to earn more in UK and elsewhere. This is why it is "the Poland problem." While there are various problems in the Polish economy, it has been arguably the best performing of all the transition economies, a poster boy for supposed success. But here we now have this authoritarian, lying regime that draws its support from all sorts of lingering grievances, with only some of them economic. The sorts of appeals this regime are making can be seen by the propagandistic and at times border line insane garbage being handed out by "David" here, aka "Varsovian."

Thornton Hall said...

The success of the October Revolution continues to be the cause of endless misery.

There are the historical elements: Poland’s suffering under Russian/Communist domination. And Poland’s suffering under Hitler, who never exists but for the success of the Bolsheviks to scare the old Junkers.

But there is also our lost 20th Century of Social science, driven to ever greater flights of theory by a procession of Romantic Newtonians from Marx to Foucault.

God forbid the situation in Poland might simply be the net result of all the empirical facts on the ground as noted by Barkley, Bruce, AND Dave! This is not to criticize Barkley, who focuses on these facts on the ground to a large extent. More to criticize the context, a book of comparative economics, and also the virulent, and to some extent *theoretical*, manner in which Dave is rejected.

Dave said...

I see there's no way I can make you understand that Crony Capitalism in cahoots with Old Commies isn't a healthy situation for Poland to be in. Combined with a hate-the-poor social policy, so beloved of Poland's "Liberals". It's funny equating Liberalism with a visceral hatred of poor relief. Sounds like Hard Right to me!!
But lets look at the "Liberal" media. Poland has 3 main TV stations. Two were set up by members of the Communist secret service! Great defenders of Hate-the-Poor Liberalism. Just look up Solorz-Zak for goodness' sake! Owner of Polsat TV. He had 16 passports for his 'confuse and denounce' career among the Polish diaspora in 1980s Germany on behalf of the Communist secret police. Previously, he'd been a car thief. Now he's an oligarch.
Look at former agent Andrzej Hadacz working in a 'confuse and discredit' role at TVN TV station, pretending to be a rather stupid, extreme Catholic agitator. You don't really need to be able to speak Polish to enjoy this footage from the "Liberal" years. After being outed he now militates for gay and abortion rights.
Donald Tusk forced most leading journalists to leave Rzeczpospolita - our premier newspaper. A very Liberal move. Why? He didn't like a story! He also had the editor of Fakt newspaper sacked for the same reason. Still makes no waves with you, does it?
Being Americans, you didn't have to go far to find Old Commies, as we sent one as our Man in Washington. Ryszard Sznepf, whose daddy was the KGB colonel in charge of repression at Warsaw University.
Still, as you've proved before - I'm speaking to the deaf. You'll just keep on supporting the anti-democratic extremists who were in power since 1989. Just because you think it's good for Big Business. Well - here's some real news - Big Business is making record profits after the crooks were voted out and could end up ditching their attack dogs. Business is after all business. There'll be life after cronyism.