Poland: Combining Growth and Stability
Total Page:16
File Type:pdf, Size:1020Kb
A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Aslund, Anders Article Poland: Combining Growth and Stability CESifo Forum Provided in Cooperation with: Ifo Institute – Leibniz Institute for Economic Research at the University of Munich Suggested Citation: Aslund, Anders (2013) : Poland: Combining Growth and Stability, CESifo Forum, ISSN 2190-717X, ifo Institut - Leibniz-Institut für Wirtschaftsforschung an der Universität München, München, Vol. 14, Iss. 1, pp. 3-10 This Version is available at: http://hdl.handle.net/10419/166522 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Focus POLAND POLAND: COMBINING pean Union (EU). No post-communist country, pos- sibly with the exception of Estonia, has been as suc- GROWTH AND STABILITY cessful as Poland (Åslund 2012). Never have Poles enjoyed two decades of such peace, freedom, welfare and happiness. ANDERS ÅSLUND* The aim of this article is to review major economic developments and compare Poland with its closest Poland used to be the unfortunate battle ground at peers – the Czech Republic, Slovakia, and Hungary, the center of Europe. Norman Davies (1982, xvi) as well as the three Baltic countries (Estonia, Latvia, named his great history of Poland God’s Play - Lithuania) and occasionally with Slovenia, Romania ground because of all the disasters that had befall- and Bulgaria, which together form the Central and en the nation. This phrase “can be aptly used as an Eastern European 10 (CEE10), the ten former com- epithet for a country where fate has frequently munist countries that became members of the EU in played mischievous tricks”. In the 18th century, 2004 or 2007. Throughout this paper unweighted Germans talked about polnische Wirtschaft (Polish averages are used, giving each country equal weight economy), meaning bad economy, while Swedes regardless of its size. used the term polsk riksdag (Polish Parliament) for political disorder. Poland’s relative economic development from 1990 to 2012 falls into three different periods. In the The nation lost all independence from 1795 until post-communist transformation, 1990–2000 Poland 1918. In the interwar period it suffered from hyperin- persistently recorded superior growth. During the flation and economic stagnation. During World War global boom from 2001–2007 Poland experienced II, it lost six million citizens, the largest share of any lower growth than other countries in the region and country. After the war, the Red Army occupied the in the global financial crisis of 2008–2012, Poland country, and the Soviets guaranteed communist dicta- outperformed once again (see Figure 2). The final torship until 1989. Poles reacted by emigrating in their section assesses Poland’s strengths and weaknesses millions. facing the future, and suggests what its government Today everything has changed. Since 1989, Poland should do. has become a consolidated de - mocracy. In January 1990, Po - Figure 1 land opted for a radical and com- GDP per capita, PPP prehensive program of economic constant 2005 international dollars reforms that quickly created a 30 000 market economy. From 1990 1990 2011 until 2011, Poland experienced 25 000 the greatest economic growth in 20 000 the former Soviet bloc in Europe by a wide margin. It more than 15 000 doubled its GDP in real terms 10 000 (see Figure 1). In 1997, Poland became a member of the North 5 000 Atlantic Treaty Organiza tion, and in 2004 it joined the Euro - 0 Latvia Lithuania Bulgaria Romania Czech Hungary Slovenia Slovak Poland Republic Republic Data for Estonia is unavailable. * Peterson Institute for International Economics. Source: World Bank, World Development Index. 3 CESifo Forum 1/2013 (March) Focus Figure 2 (Balcerowicz 1994). Detractors GDP growth nicknamed this big bang ‘shock % therapy’. 10 5 The outstanding feature of the Balcerowicz program was radical 0 and comprehensive deregulation - 5 designed to create a real market - 10 economy almost overnight. This radical liberalization was imple- - 15 Poland mented on 1 January 1990. It - 20 Baltics consis ted of four measures: far- Czech Republic, Slovakia and Hungary reaching price liberalization, a - 25 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 truly radical external liberaliza- expected tion, the breaking up of state Source: EBRD (2000); World Bank, World Development Indicators (2012); International Monetary Fund, World Economic Outlook Database (October 2012); JP Morgan Forecast (31 January 2013). concerns and associations into single enterprises and the liberal- ization of domestic trade. Leszek Balcerowicz’s shock therapy worked The most radical measure was a legal act allowing The secret of Poland’s success lies in the immediate anybody to sell anything anytime in any place at any post-communist period. In June 1989, Poland held the price to anybody. As a result, the central squares in first partially democratic elections in Eastern Europe. Warsaw and other big cities were flooded with people The opposition could not contest most seats, but it who started selling whatever they wanted to get rid of swept those open to it. In September 1989, Poland’s and soon this informal trade transformed into ordi- first post-communist government was formed. nary enterprises. Within two years, the most success- ful street traders had become shopkeepers. The exter- In spring 1989, Warsaw Professor Leszek Balcerowicz nal deregulation was also highly radical, instantly ren- wrote a summary reform program, which included dering the zloty convertible on current account and privatization, liberalization of foreign trade, currency abolishing import tariffs, which was popular since it convertibility, and an open economy. In September, he alleviated most shortages (Balcerowicz 1992; Åslund became minister of finance and, in effect, the coun- 2012). Poland saw the massive development of new, try’s chief economic reformer. Before the reform gov- small enterprises (Johnson 1994). This large-scale ernment was formed, the last communist government deregulation was probably the main reason why had liberalized food prices, which led to inflation of Poland suffered less transitional output decline than some 40 percent in the month of September and any other post-communist country and started grow- 54 percent, or hyperinflation, in October. A financial ing after only two years. stabilization program had to be added to the radical structural reforms. Balcerowicz was assisted by his A second reason for Poland’s early success was that it advisors Harvard Professor Jeffrey Sachs and his col- received timely and sufficient international assistance. laborator David Lipton, who had experience of defeat- Too often, Poles tend to forget how important that ing hyperinflation in Latin America (Balcerowicz was. From the outset, the West displayed a broad con- 1992; Sachs 1990 and 1993; Sachs and Lipton 1990). sensus on Poland, gathering in the G24 (the then 24 members of the Organization for Economic Co - Balcerowicz’s program prescribed early, radical and operation and Development) and pledging to finance comprehensive reform. It was reminiscent of the the stabilization fund, which was connected to an ‘Washington Consensus’, but it went further. Its four International Monetary Fund (IMF) standby pro- tenets were macroeconomic stabilization, deregula- gram. This strong Western support for Poland was rel- tion, privatization, and a reinforcement of the social atively cheap. The upfront cost was about 1.6 billion safety net. The big novelty was its timing: to imple- US dollars (Sachs 1993). ment all tenets simultaneously, because there was a window of opportunity in the early democratization A third cause of the success was related to favourable of ‘extraordinary politics’ that had to be utilized preconditions. Poland already had a large private sec- CESifo Forum 1/2013 (March) 4 Focus tor in its communist era, primarily in agriculture, but only two years of contracting output, it was the first also in urban industries. Therefore, Poland and post-communist country to return to economic Hungary were the only post-communist countries growth, and from 1993–2000 its average growth rate with reasonable legislation for the regulation of pri- was 5.4 percent a year (see Figure 2), superior to that vate enterprise (Åslund 1985). Moreover, because of of all other countries in the region. What at the time the country’s openness to the West, millions of Poles was widely