FOR Communication 22/2019: Myths of economic transformation in Poland
30 years ago the first free elections after World War II took place in Poland. The important part of the transition that begun at that time was Balcerowicz Plan – a comprehensive economic reform that aimed to implement free-market capitalism. As a result, during last 30 years the Polish economy has developed tremendously. Nonetheless, among commentators, politicians and ordinary people, one can often find the opinion that the economic transition did not bring Poles much good. Therefore, in a series of charts illustrating the changes that have taken place in our country, we will deal with the most common myths about the Polish economy.
The most popular myths of economic transformation in Poland:
Myth 1: Poland developed poorly after 1989
The fact that Poland is lagging somewhat behind these countries does not result from a weak development in the last 30 years, but from the fact that in 1989 it was a very backward country in comparison with the region. Poland was the poorest of all the countries of Central and Eastern Europe, which later joined the European Union. It was at the level of development of the then Ukraine.
Myth 2: Poland's development does not result from the radical reforms it has adopted
The countries that decided on radical reforms and did not reverse them later, quickly emerged from the crisis in which all the economies of the Eastern bloc found themselves as a result of decades of state ownership of the means of production and a residual market.
Myth 3: Balcerowicz's plan pushed Poland into a long-term crisis
Poland was the first country in the region to achieve a positive growth rate and was one of the countries that gained control over inflation at the earliest, bringing it below 50%. Poland, together with the Czech Republic and Slovakia, is one of the first countries to reach the level of GDP per capita in 1989.
Myth 4: In the 1990s foreign investors only bought state-owned companies
In Poland, foreign investors did not often participate in privatisations. Instead, they built greenfields, purchased plants from private companies or developed existing ones.
Myth 5: Foreign corporations drain Poland from capital
PLN 100 billion is the total amount of income of foreign investors from foreign direct investments and portfolio investments. Revenues from foreign direct investments in 2017 amounted to approximately PLN 70 billion. However, when we compare this amount with the value of the investment (PLN 636 billion), it turns out that the rate of return is not overstated at all - it amounts to 11%.
Myth 6: Polish industry collapsed as a result of the transformation
In fact, after 1989, Poland undertook an impressive industrialization. Since the beginning of the transformation, the value added in industrial processing has increased by almost 900% per capita. This was possible thanks to the adaptation of the Polish industry to market conditions and its integration into global value chains.
Myth 7: Industry in Poland is in foreign hands
Poland, like other countries of our region, bases its growth to a large extent on received foreign investments. This does not mean, however, that Polish companies are not developing. We should also remember that foreign companies in Poland employ mainly Poles.
Myth 8: As a result of the transformation, Poland has become a market for the West
This accusation is bizarre, because consumption is the ultimate goal of production. That's why we produce, to consume. So if we have a wider choice of goods, it is better for us, not worse. If so, no one has to give us anything extra to make it profitable to open the market to imports.
Myth 9: The Polish transformation was burdened with a large number of victims
According to the European Bank for Reconstruction and Development, income in Poland increased in every percentage of income groups by at least 40% (average for G7 countries). However, it has to be admitted that measuring income by different groups is quite a difficult task. However, even according to much more conservative estimates by Bukowski and Novokmet, revenues in 96 centile groups increased after 1989.
Author:
Marcin Zieliński, economist
marcin.zielinski@for.org.pl
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