Listener 6 January 2001
Keywords: Globalisation & Trade;
I like Warsaw. The young people swing along the street with all the insouciance of Parisians. But the old folk bear their past. One could easily have been ruled by the Russians, the Germans, the interwar Republic of Poland, the Soviet Union, and the communist regime of Poland, without hardly moving residence. And now as age (and some brutal winds from the Steppes) close on them, they are once more in a democratic regime.
When I visited the Poles a decade ago, shortly after the Berlin Wall had fallen, I thought they were going to adopt the then so fashionable commercialist policies which got New Zealand into trouble in the 1980s. I was told not to worry. There would be no rush to destruction. The Polish economy had been edging towards the market economy since 1982, and the Polish economists were not that incompetent. Returning in 2000, you see how right they were.
For the Poles have done well with the growth of production (GDP), dreadfully on the inflation front (consumer prices rises have averaged around 10 percent a year), while the unemployment level and balance of payments do not look too good either. Even so, except for inflation, the Poles have done better over the last decade than New Zealand. That is no surprise – except to our business commentators. But Poland remains a poor country – their GDP per capita is about a third of ours.
The Polish performance is all the more extraordinary given their main market collapsed – twice. The Soviet Union economy contracted in the early 1990s, and the Russian economy crashed in the late 1990s. On the second occasion, the Poles lost their outlet for their low technology manufacturing exports. Their western neighbours, the Germans, also lost a market (for high technology manufacturing) and switched to selling to Poland. So the Polish manufacturers were caught in the double whammy of the loss of the major external market and an invasion of their internal one.
The Polish experience provides a test of one of the propositions that has been used to justify the poor performance of the New Zealand economy since 1984. It was argued that we did badly because we started off with a dreadful base with the economy riddled with distortions. But nobody would argue the Polish economy was less distorted in 1990 then New Zealand in 1984. Yet they performed better. Why?
Back in 1990, the dissenting New Zealand economists and the Polish economists I talked to, agreed that the external sector was the key. It was crucial to keep a viable exchange rate, which encouraged exporting and the dynamic industrial growth the tradeable sector induces. Poland did: New Zealand did not. The Poles increased their share of OECD exports, the New Zealand share fell. However both guzzled imports, so Poland too faces a deteriorating balance of payments – although not quite as seriously as New Zealand.
Not everything is perfect in the Polish economy. They still have some massive industrial restructuring to do – often where there are strong unions which are politically influential (although the famous Solidarity shipyard has been privatised). Moderate social reform has done better than New Zealand’s rushed extremism. But to give a simple example of how difficult things can be there, I thought in 1990 there were to be gains from privatising the stock of public housing: individuals look after their house better than the state, it would encourage domestic savings, small entrepreneurs use a house mortgage to start up, and it would lead to a more sophisticated retail banking sector. But Poland’s public houses are owned by local authorities, who are far more inclined to corruption than the central state. Selling the houses would provide too many opportunities for graft, and they remain in public hands.
We often describe Poland as being in ‘Eastern Europe’, but Warsaw is closer to Brussels than Moscow, to the Atlantic than the Urals. I prefer the term ‘East-Central Europe.’ The Poles look West – they use a roman alphabet, their art is influenced by France and Italy, their religion is Roman Catholic not Eastern Orthodox. Their view of things east must be contaminated by the enormous Palace of Culture which dominates the centre of Warsaw. Gifted by the Soviet Union, but paid for – so goes the myth – by Polish zlotys. The best views of the city can be seen from it – so they say – because you are looking from, rather than at, the ugly monstrosity.
Inevitably then, they Poles are keen to join the European Union, not just for its economic and security benefits, but because its values are closer to their’s. The EU is less enthusiastic, because of the horrendous costs to their agricultural budget, among other reasons. Hopefully, the political logic will override the economic costs. (New Zealand hopes this will occur with a wind back of EU agricultural subsidies.)
It will be symbolic when they join. The West went to war in 1939 over the invasion of Poland, while the Solidarity upheaval and a Polish Pope are often seen as the beginning of the end of the Cold War.