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Transformation of Polish Eco.ppt - EIASM

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Transformation of Polish Eco.ppt - EIASM Powered By Docstoc
					               Ryszard Rapacki

               Head and Professor, Ph.D.
 Department of Economics, Warsaw School of Economics




    LESSONS FROM
TRANSFORMATION OF THE
   POLISH ECONOMY


   Presentation prepared for the EDAMBA meeting,
              Warsaw, 7 September 2009

                       Ryszard Rapacki                 1
                  Warsaw School of Economics
Contents


I Introduction
II Key outcomes of systemic transformation –
   an empirical picture
III Strengths and weaknesses of Polish transformation
IV Lessons from the Polish transition




                          Ryszard Rapacki           2
                     Warsaw School of Economics
                                Empirical picture
Table 1
Relative development levels in Poland, EU countries and selected transition economies,
1989-2008 (GDP per capita at PPP, Poland = 100)
                          1989      1992      2000        2004       2005       2006      2007      2008
 Poland                      100       100       100         100        100        100        100      100
 Germany                     279       350       246         230        228        217        215      201
 France                      268       320       239         218        216        209        204      187
 Italy                       274       327       242         211        204        198        190      175
 UK                          256       291       242         244        237        230        223      203
 Spain                       199       244       202         200        199        199        198      181
 Ireland                     195       252       271         280        281        282        282      242
 Portugal                    159       212       162         147        150        146        143      131
 Greece                      178       210       174         186        181        180        178      166
                             262       316       238         223        220        214        205      192
 EU15 average1
                            (38)      (32)      (42)        (45)       (46)       (47)       (48)     (52)
 Czech Republic              197       194       142         148        150        148        150      140
 Estonia                     142       114        93         113        119        125        127      117
 Hungary                     146       140       116         125        123        122        117      109
 Latvia                      137        93        76          90         95        101        102       97
 Lithuania                   145       128        81         100        103        106        111      106
 Slovakia                    155       137       104         113        117        121        125      125
 Slovenia                    194       176       163         171        170        168        166      156
 Bulgaria                    122       108        58          67         69         70         70       70
 Romania                      89        79        54          67         69         73         79       79
1 – data in parentheses show Poland‟s development level as a percentage of the EU15 average;
Source: IMF, World Economic Outlook Database, September 2005 (for 1989 and 1992); Eurostat database
        (2000-2009) and own calculations.


                                            Ryszard Rapacki                                                  3
                                       Warsaw School of Economics
Table 2
Growth of Gross Domestic Product, 1990-2008
                                      Real GDP growth rate
                       Average annual %                                       Real GDP index in 2008
         Country                                 Annual % growth
                            growth
                          1990-2008         2006     2007       20081         1989=100      2000=100
  Poland                      3.1            6.1      6.6        5.4             178           139
  Czech Republic              1.9            6.8      6.0        4.4             145           140
  Estonia                     1.7           10.4      6.3        -1.3            137           164
  Hungary                     1.5            4.1      1.1        1.7             134           131
  Latvia                      1.1           11.9     10.2        -0.8            123           179
  Lithuania                   0.8            7.8      8.9        3.8             117           175
  Slovakia                    2.6            8.5     10.4        7.0             164           162
  Slovenia                    2.3            5.9      6.8        4.4             154           138
  Bulgaria                    0.3            6.1      6.2        6.5             113           145
  Romania                     1.3            7.9      6.2        8.5             128           164
  EU15                        2.0            2.8      2.7        -0.1            146           114
1 – forecast.
Sources: World Development Indicators 2005, The World Bank, Washington 2005; Transition Report Update,
        EBRD, London, May 2005; Eurostat database; UN Economic Commission for Europe, Economic
        Survey for Europe, 2005 No. 2, Geneva 2005; VIIW Research Report No. 325, Special Issue on
        Economic Prospects of Central, East and Southeast Europe, Vienna, February 2006; own calculations.




                                           Ryszard Rapacki                                               4
                                      Warsaw School of Economics
Table 3
Progress in market (structural) reforms in ten CEE transition countries, 2008
                                                         Development of markets     Financial           Infra-
                                  Enterprise sector
                                                            and competition        institutions       structure
                                                                                          Secu-
                                                                                          rities
                                              Gover-                            Banking
                                                                                          markets
                                              nance              Trade          reform                            Average
Country                     Large Small                                                   and         Infra-
                                              and      Price     and ex- Compe and                                 score
                            scale    scale                                                non-        struc-
                                              enterpri liberali- change -tition liberali-
                            priva- priva-                                                 bank        ture
                                              se       zation rate       policy zation of
                            tization tization                                             finan-      reform
                                              restru-            regime         interest
                                                                                          cial
                                              cturing                           rates
                                                                                          insti-
                                                                                          tutions
CEE (EU10)
Poland                      3.3        4.3      3.7      4.3      4.3      3,3       3.7      3.7      3.3        3.78
Czech Republic              4          4.3      3.3      4.3      4.3      3         4        3.7      3.3        3.81
Estonia                     4          4.3      3.7      4.3      4.3      3.7       4        3.7      3.3        3.92
Hungary                     4          4.3      3.7      4.3      4.3      3.3       4        4        3.7        3.96
Latvia                      3.7        4.3      3        4.3      4.3      3         4        3        3          3.62
Lithuania                   4          4.3      3        4.3      4.3      3,3       3.7      3,3      3          3.69
Slovakia                    4          4.3      3.7      4.3      4.3      3.3       3.7      3        2.7        3.70
Slovenia                    3          4.3      3        4        4.3      2.7       3.3      3        3          3.40
Bulgaria                    4          4        2.7      4.3      4.3      3         3.7      3        3          3.54
Romania                     3.7        3.7      2.7      4.3      4.3      2.7       3.3      3        3.3        3.44
Average for EU-10                                                                                                 3.68
Note: Scale from 1 to 4.3; the higher the score, the greater is the progress in the reform process.
Source: EBRD, Transition Report 2008.



                                                  Ryszard Rapacki                                                           5
                                             Warsaw School of Economics
          Strengths and weaknesses
Table 4
Major strengths and weaknesses of systemic transformation in Poland
              Strengths                                                                                                             Weaknesses
                                 Performance-based

 Fastest economic growth in the CEE           Loss of leading position in economic
  region (and second-fastest in the entire      growth since 2000; Poland‟s GDP growth
  group of 28 transition economies) in the      rate was below the average for the new
  1990s and, as a derivative, between 1990      EU members from Central and Eastern
  and 2008                                      Europe

 Real convergence (or catching up)            Real economic divergence vis-à                                                                                                                                                                                                                                                  -       v               i           s




  towards the EU15 – from 38% of the            m       o           s       t           o       f           t   h           e           E           U           -   1           0               c       o       u           n               t   r           i   e           s                   b           e           t       w                   e               e           n




  average in 1989 to 52% in 2008 (GDP           2   0       0           0                   a   n       d               2           0       0       8       ;           a       s           a               r   e       s           u           l       t           b               y                   e           n               d           -               2           0           0       8




  per capita in PPP).                           P   o           l   a           n           d       w               a           s       r       a       n       k           e       d               a       m           o               n           g                           t       h           e                   l       e           a               s           t




                                                d   e       v           e           l   o       p       e       d                   m           e       m           b           e       r       s           o       f           t           h           e               E                   U                   2           7                   (               r       a           n       k




                                                2   4       )




 Export-driven economic growth after          Low propensity to save and one of the
  2000; since 2006 it was coupled with          lowest investment-GDP ratios in EU10
  strong investment expansion                   countries; large investment-domestic
                                                savings gap
 High, consistent growth of labour            Reversal, since 2007, of hitherto
  productivity and high TFP (total factor       downward trend of real unit labour
  productivity) contribution to overall GDP     costs, as a derivative of wage hikes in
  growth; since 2005 the former has been        excess of labour productivity growth.
  coupled with rising employment level          This may undermine future price
                                                competitiveness of Polish exports


                                   Ryszard Rapacki                                                                                                                                                                                                                                                                                                                                                  6
                              Warsaw School of Economics
Table 4 (cont.)
Major strengths and weaknesses of systemic transformation in Poland
               Strengths                                       Weaknesses
                                  Performance-based

 Improving situation on the labour market;     Failure in meeting the “golden rule” of
  nevertheless unemployment in Poland is still   public finance, i.e. using fiscal deficit to
  excessive and ranks among the highest in       finance public investment
  the EU-27. Moreover, the natural rate of
  unemployment has run close to double-digit
  levels

 Increasing stock of human capital due to        Low innovative capability and too weak
  rising educational level and large-scale         domestic private sector technological
  training activities                              innovations

   Large and rising stock of                     Relatively low (though improving)
    entrepreneurial talent                         technical competitiveness of Polish
                                                   exports: low share of processed and high
                                                   tech goods (4% of total manufacturing
                                                   exports)

       Relatively strong foreign financial       Underdevelopment of physical
        position including manageable trade        infrastructure (in particular roads)
        and current account deficits




                                     Ryszard Rapacki                                            7
                                Warsaw School of Economics
Table 4 (cont.)
Major strengths and weaknesses of systemic transformation in Poland
               Strengths                                  Weaknesses
                                  Performance-based

 Resistance to international financial       Widening gap between Poland (despite its
  crises in the 1990s and early 2000s          fast progress) and other EU-10 countries,
                                               except Bulgaria and Romania, in the
                                               incidence of modern information and
                                               communication technologies and in access
                                               to Internet

 Growing investor confidence; decrease of
  perceived country risk and steady inflow
  of FDI

 Technological reconstruction of Polish
  economy and improvement of its
  international competitiveness due to
  increased FDI inflow

 Changing pattern of FDI – deployment of
  R&D and support activities to Poland
  (e.g. accounting and software
  development centres)




                                    Ryszard Rapacki                                        8
                               Warsaw School of Economics
Table 4 (cont.)
Major strengths and weaknesses of systemic transformation in Poland
              Strengths                                       Weaknesses
                                    Institution-based

 Relatively broad content of ownership          Delayed „top-down‟ privatisation of
  changes, not confined to formal transfer of     several core sectors including network
  property rights, as in most transition          industries; too slow restructuring of sun
  economies                                       set industries

 Advanced microeconomic restructuring,        Unsettled problem of a part of property
  progress in corporate governance and          rights‟ allocation (restitution)
  growing responsiveness to market signals of
  former SOEs

 Important role of „grass-root‟                 Strong equity bias in public expenditure
  privatization and expansion of SMEs             programs (high priority of redistributive
  making the Polish economy more and              objective) at the cost of efficiency and
  more resistant to political turmoil             negligence for important developmental
                                                  goals

 Implementation of the innovative pension       Low transparency of public finance; soft
  system reform which is likely to alleviate in   budget constraint and strong rigidities in
  the future the problem of hidden public debt    fiscal policy




                                   Ryszard Rapacki                                             9
                              Warsaw School of Economics
Table 4 (cont.)
Major strengths and weaknesses of systemic transformation in Poland
              Strengths                                       Weaknesses
                                    Institution-based

 Positive impact of the new pension scheme      Insufficient government funding of
  on capital market development                   domestic R&D and investment in human
                                                  capital

 High quality of prudential regulations of the  Overregulated labour market displaying
  Polish stock exchange                           many structural and institutional
                                                  rigidities; high (though decreasing) tax
                                                  wedge on labour costs

                                                 Low level of social capital (or trust).
                                                  Main symptoms include symmetrical
                                                  distrust of Poles towards the government
                                                  and vice versa; as a derivative, the latter
                                                  erects multiple bureaucratic barriers and
                                                  hurdles that constrain the scope of
                                                  economic freedom

                                                 Persistent symptoms of a Myrdalian
                                                  „soft state‟ (relatively high incidence of
                                                  corruption, low effectiveness of the
                                                  judiciary power, low enforcement of
                                                  the law and government regulations)



                                   Ryszard Rapacki                                              10
                              Warsaw School of Economics
Table 4 (cont.)
Major strengths and weaknesses of systemic transformation in Poland
             Strengths                                    Weaknesses
                                 Institution-based

                                             Mounting bureaucratic barriers for
                                              private enterprise and deteriorating
                                              business climate, which may be hold
                                              responsible for declining scores for
                                              Poland in international rankings of
                                              economic freedom and competitiveness

                                             Low quality of the political process in
                                              Poland and strong bias towards rent-
                                              seeking at the cost of efficiency

                                             In most general terms, government
                                              failure to create positive externalities for
                                              private business and economic
                                              development




                                Ryszard Rapacki                                              11
                           Warsaw School of Economics
             Lessons from the Polish transition
Key success factors
•   Shock therapy + strong personality of the leader (Balcerowicz).
•   Social support including the 'Solidarity factor'.
•   Shock therapy vs. gradualism. In Poland – deep macroeconomic
    imbalances called for a radical approach. In general terms, the
    choice of transformation strategy should take into account the initial
    conditions including the command economy legacy.
•   Sequencing of the reforms – depends on initial conditions. However,
    complexity is required to create the „critical mass‟ of the reforms and
    make them irreversible. If, like in Poland, deep macroeconomic
    disequilibrium is pervasive, the shock therapy is advisable while
    institutional reforms make take more evolutionary course
    (nevertheless, they should be implemented in full complexity to
    ensure positive synergy and necessary complementarities).

                                  Ryszard Rapacki                   12
                             Warsaw School of Economics
•   The role of the „EU factor‟ or “external anchor” – crucial at later
    stages of transition to the market.
•   Relative openness of the country since 1956 – exposure to Western
    culture and ideas.
•   Gierek‟s decision in 1970 to open the borders - primitive
    accumulation of capital (including human) - explosion of small
    private entrepreneurship since 1989.
•   Relevance of historical traditions (Octavio Paz and his “Laberinto de
    la soledad”). Hence, the design of transformation strategy and
    accompanying economic policies should be compatible with
    national „identity‟.
•   Consistent economic policy after 1989 despite changing
    governments.
•   Selected pre-war institutions (e.g. Commercial Code) on place.
•   Exchange rate regime: „fixers‟ vs. „floaters‟.
                                  Ryszard Rapacki                    13
                             Warsaw School of Economics

				
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