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Maciej Bukowski: Poland in 30 years? The key is globalization

Grzegorz Siemionczyk

Poland is one of the largest beneficiaries of globalization in the last 30 years. The fact that we tripled GDP and wages, we gained the know-how to create competitive companies, it was possible thanks to the opening of markets and external investments. Stopping globalization is not in our interest – says Maciej Bukowski, economist.

Plus Minus: At the beginning of the 1990s, the purchasing power of the national income per person amounted to only 30 per cent of the purchasing power of an average German’s income. Today, 30 years later, it’s over 60 per cent. Will our children, now a few years old, be as rich as Germans at an adult age?

Maciej Bukowski: They have chances. By 2050, full convergence of the purchasing power of income in Poland with the European average can take place. However, the level of income will be still a dozen or so per cent lower than in Germany. In addition, the Polish currency will remain relatively weak – in nominal terms, if we continue to use zloty, or likely if we approve the euro currency. So the purchasing power of an average family’s income in Poland will be the same as that of Western Europeans, but only on our market. The same value abroad will be lower, and the same service bought there will be more expensive for us than in the country. This difference should disappear only in the years 2060-70. Then even the nominal income of a statistical Pole should be at the level of the EU average.

 

What will the pace of this catching up depend on?

We must be ready to respond adequately to the challenges that the revision of global order may have brought to the United States. This means much more urgent, than we are used to thinking, the need to strengthen our own comparative advantages and to supplement the largest deficits and gaps that divide us from the western world. At the moment In Poland, companies that are able to compete in global marketsshould be created and grow more often than ever before. Today, many Polish enterprises either are not interested in growth and expansion outside the domestic market or are not able to do so. We miss a large number of Polish equivalents of German companies”Mittelstand”, meaning medium-sized companies competing globally. There must also be a strengthening of the competitive structure of the entire population and the emergence of a wider group of people with global skills and aspirations. This requires an urgent doubling of public spending on higher education and science, as well as creating organizational and fiscal conditions that position Poland among the most attractive countries for creative activities on a European and even world scale. At the same time, we must attract as diverse investments as possible, from many industries, both industrial and service, and avoid the temptation to put too high rates on one development card. Bets on how the future will look are risky. The economy must be prepared for various scenarios.

Prime Minister Mateusz Morawiecki seems to think that the path to prosperity is the development of industry, referred to as the “reindustrialisation” in the Responsible Development Strategy. Is this really a good direction?

Yes and not at the same time. “Reindustrialisation” is an unfortunate term, suggesting that our industrial base has been somehow damaged and needs reconstruction. It is true that today employment in this sector is smaller than it was at the end of the PRL, but then the industry was inefficient, the real value of production was small. The added value in the processing industry per one inhabitant of Poland is a much better measure. Looking at this indicator, industrialization in Poland has been steadily developing since the beginning of the transformation, and since 2000 it has been growing very fast, at a rate of 5-7 per cent per year. And indeed, we must continue this process because there is no country that would be enriched by neglecting industrialization.

In order to achieve the level of industrial production per capita (in nominal terms, and this is more than the purchasing power parity) close to the level of Western Europe, we still need 10-15 years of growth with the current dynamics. And it is possible. Catching up the level of industrialization of South Korea or Germany would require maintaining extremely high dynamics of development of this sector until at least the middle of the century, which may prove to be much more difficult and not necessarily needed, because with the increase in GDP per capita the relative role of the manufacturing industry in the economy decreases – production must strongly to automate and the percentage of people working in this sector is decreasing. After 2030, we can expect the emergence of this trend also in Poland. This is the beginning of a long process of transformation into a post-industrial economy, which generates a lot of industrial goods, but in a highly automated manner, and thus with less and less employment in the industry.

 

For several years now, the so-called business services. Does it mean that we are already becoming a service economy in the first place?

These are the first signs of this process, although the development of the industry is still very fast, so at the beginning of the relative deindustrialisation described by me, we still have to wait. In the long run, however, the service sector will completely dominate the labour market, while industry will share the fate of agriculture, which is the industry that, by the effort of a limited group of people, satisfies the consumption needs of the entire population. However, I do not know a country that would only get rich on the basis of services, so industrialization – understood as achieving high industrial production per capita – must come first.

A year ago, your think-tank WiseEuropa warned that if energy policy does not change, then in 2050 we may run out of electricity. The risk that the development of the Polish economy will stop the inefficient, outdated energy system still exists?

Unfortunately yes. Our entire energy policy is based on questioning global reality, ignoring technical changes taking place in this industry and misunderstanding the implications of global agreements that we are signatories to, such as the Paris Agreement. Avoiding the necessary decisions and passively waiting for everything to be old-fashioned in our energy policy for at least a dozen or so years. Recently, this phenomenon has become a bit more visible, among others because due to non-subject reasons, we blocked the development of renewable energy sources (RES) just when they became competitive on the market. While 10 years ago we could argue that with the departure from coal in the energy sector, it is worth waiting, because you have to pay extra for windmill energy, today this argument is no longer valid. Nevertheless, Polish law is not conducive – or even blocking – the development of this technology in the domestic energy system, and politicians uphold the illusion that the future is coal and in a situation where CO2 prices approach EUR 30 per ton. This cannot be justified by industrial policy. In the field of coal energy, we are the same as in the field of renewable energy importers of technology offered by international corporations. Only that it is much more expensive and riskier technology than renewable sources or gas-fired power plants. Despite this, we promote it, in the counter to world trends, claiming (untrue) that coal will last for 200 years. In fact, domestic hard coal production has been consistently falling in Poland for 30 years and will disappear completely by 2040. This is certain because it results from fundamental economic reasons, the same that led to the closure of the mine, e.g. in Great Britain, despite the fact that coal was still there. Having no support in domestic coal resources, observing rapid technological progress in wind energy, solar energy and energy storage, we have to change our paradigm and do the same as recently did, among others British, that is, decide to extinguish Polish coal energy until 2035-40. This requires organizational and investment effort, associated not only with energy production but also with transmission networks and storage infrastructure. But it will pay off. Not only economically, but also strategically. However, the condition for success is also the understanding that these processes do not have to be controlled by the state one hundred per cent, and state-owned companies do not have to or should not be the only investors in the energy sector.

 

We will be able to do without nuclear power plants?

Until the 40. XXI century, certainly yes. Currently, due to falling demand and market regulations, the competitiveness of this technology on a global scale is falling. The unit cost of building the reactor is high and quite unpredictable. By undertaking a nuclear project, we agree to a kind of plant with reality: it can succeed or not. In China, where many reactors are being built at the same time, it may pay off, but in Poland, the risk of failure, and therefore not building power on time, is very high. However, it cannot be ruled out that in a few decades nuclear power will return to favour. It may turn out that in order to decarbonate the global energy system (not only the power industry but the entire energy flow in the economy), renewable sources are not enough if only due to spatial restrictions or acceptance of local communities and the construction of additional nuclear powers will be necessary. Currently, from Poland’s perspective, the safest strategy is to develop wind energy on land and, over time, also at sea, supplemented with solar farms and gas-fired power plants, and over time also various energy storage facilities.

Rapid development in the last 30 years Poland owed also to a good demographic situation. At the beginning of transformation, we were a young society full of faith in our own future. Today, Poland is one of the fastest-growing EU countries. Can the economy grow dynamically despite these demographic difficulties?

You should not overestimate or appreciate the importance of demography. Demographic trends can hinder development, but they do not prevent it. The change in the age structure of the Polish population may be more problematic than the decline in the population. Even if the population shrinks, labour productivity can grow at the current rate, as long as the machines are replaced by the losing workers. But if at the same time there are more and more people of retirement age relative to people of working age, the dynamics of income per citizen may fall. This problem can be mitigated by promoting accelerated automation in some industries, e.g. agriculture or the processing industry. Not in each sector and not in each profession, however, it will be easy and accessible for the economy at the level of Poland’s development, although such changes may be easier in the catching economy than in the developed economy, which has to seek reserves only in innovations, that the creation is often done by young people. For now, we have more opportunities, thanks to the reserves that we give imitations of patterns from more developed countries. In the long run, however, this model will also have to change towards greater innovation, because – as we have already said – we are losing less and less to Western Europe.

Although the number of people in productive age has been decreasing for a decade, it has so far compensated for the increase in professional activity. There was also a flow of employees from inefficient sectors, e.g. from agriculture, to more productive ones. This potential has been exhausted?

 

The labour reservoir in agriculture is still large, it will be over a dozen years before it runs out. Indicators of professional activity may also increase by 5-10 percentage points if Northern European and Western European countries are taken as their point of reference. Therefore, it seems that we still have some potential to increase employment in productive sectors, but it also requires flexibility in the labour market and changes in the current model of our professional activity. Currently, either in Poland, you work full-time or not at all. This leads to early deactivation and pressure to make the retirement age low. In those countries which are characterized by high employment rates, part-time work is common. Especially women with pre-school or early-school children and people around retirement benefit from this opportunity, thanks to which social resistance to raising the retirement age is smaller than in Poland. In Poland, we must develop a similar model of activity, although due to some features of our economy, this may be more difficult than, for example, in the Czech Republic. This is primarily about our settlement structure and the fact that in small towns, labour markets are shallow, without creating diversified jobs in service industries, predisposed for part-time employment of 60+ people.

Looking from this perspective, the deglomeration that Deputy Prime Minister Jarosław Gowin speaks of as an important element of sustainable development is a bad idea?

The element of modernization must inevitably be greater urbanization in a functional sense, although not necessarily in a statistical sense. According to the Central Statistical Office, our level of urbanization has not changed since 1990. But these data do not take into account the development of suburbs of large urban centres. The inhabitants of suburbia from the statistical point of view may be rural but are functionally urban. They work in the agglomeration. These processes will progress, the Polish countryside – understood functionally – is already depopulating, and in the next 30 years this process will deepen considerably. The same applies to many weaker, small and unfavourably located cities. Deglomerative rhetoric will not change much here, because politicians have a negligible influence on these processes. People themselves vote with their feet where they want to settle. I go for work, for better living conditions, opportunities for myself and my children. These individual choices at the macro level lead to depopulation of rural areas and smaller cities, along with economic development and population density in agglomerations and well-connected medium-sized cities. This is not a typical phenomenon for Poland, but a global one.

Can it be counteracted?

There are small chances. Policy through good railway infrastructure (including the CPK project) can strengthen medium-sized cities, communicating them with the largest metropolises, but will not affect population changes in the villages and in many small towns. Of course, the state must at the same time conduct a policy that will soften the effects of these processes on older people who are no longer moving. But even this has some limitations because it reduces the efficiency of spending in the area of public services. This is already visible, for example, in health care. In relatively sparsely populated poviats hospitals with various departments are maintained, in which new patients rarely appear.

Immigration is also a way to mitigate the demographic barrier. Can the related increase in cultural diversity be beneficial for the economic development of Poland?

 

International examples indicate that greater cultural diversity can bring great benefits to countries whose economies are focused on export and innovation. Assuming that globalization will not reverse or undergo modifications in a way that we can deal with, the more we will have residents who will have a global mentality and be able to create ties not only with OECD countries, but with fast-growing economies such as China, India or Vietnam, the easier it will be for us to build competitive companies and compete globally, and thus develop. Immigrants, due to the fact that they do not have assets in the country in which they settle, usually have to earn some extra money, which makes many of them much more willing to take risks and extraordinary effort compared to the native population. Hence, in many countries, immigrants are often over-represented among entrepreneurs, scientists and employees with very high and unique qualifications. At the same time, it also depends on the structure of immigration. Many Western European countries have a problem with the fact that they are the target of immigration of rather low-skilled people from Africa and the Middle East. To use immigration, you have to be there to be attractive for immigrants to be able to select them, and this requires a conscious and active immigration policy and integration-oriented activities. We do not have either of these components yet.

And do you think that globalization will continue? There is a certain reluctance to this process in the world, not only among politicians but also among intellectuals.

It is difficult to assess. On the one hand, the United States has recognized that this process has ceased to serve them as an empire. So they start to turn it over or at least try to do it, as you can see from the commercial war with China. On the other hand, modern technologies are adapted to globalization. One factory can produce all over the world, and the local market is too small for it unless we are talking about countries such as the US or China or about trade unions such as the European Union. Therefore, globalization is in the interest of corporations and it is they who have done it, so they do not want to reverse it, which limits the possibilities of politicians. Maintaining globalization, even in a modified form from the Polish perspective, would be good news. Because Poland, which we often do not realize, is one of the largest beneficiaries of globalization in the last 30 years. In addition to South-East Asia, it is difficult to find a region in the world that has benefited so much from globalization as the countries of Central and Eastern Europe that are in the European Union today. The fact that we were growing on average at a rate of 4 per cent per year, we tripled our GDP and wages, we acquired the know-how to create competitive companies, it was possible thanks to the opening of markets, foreign investments and the export orientation of the Polish economy. Based on high-quality human capital and relatively low wages, we attracted foreign companies from whom we learned, taking over the know-how and building competencies both on an individual and institutional level. Our entrepreneurs cooperated with international corporations, built their own companies that entered international supply chains and climbed up. This growth process is not finished. There is still a distance between Poland and the economies of Germany, Switzerland or the USA, but in comparison with Poland AD 1989, we live in a different world today. Therefore, it is not in our interest to stop globalization.

However, this process has many critics, also in Poland. They argue that foreign companies are getting richer at the expense of Polish workers that we are a German farm.

These are emotional assessments that do not have large coverage in reality. It is certainly worth striving to strengthen the role of domestic capital in production and exports, however, today it is not as bad as it seems to us. The share of foreign capital in production (about 50%) is similar in Poland to many countries in Western Europe, such as Belgium and Sweden, although slightly larger than eg in Germany and France (about 30%). In Slovakia, or in Hungary, the share of foreign capital in production reaches 80-90 per cent. It’s also good to know that politicians can only influence indirectly such measures, building competitive advantages of Poland in a way that fosters the emergence of global corporations with Polish capital. It will not happen in a few but rather a several dozen years. Those corporations that exist today in the West are the fruit of processes that have often lasted for a century. Their acceleration, for example in South Korea (and so lasting half a century) took place at the expense of medium competitiveness companies, and therefore also the well-being of the entire population. Unfortunately, there are no shortcuts to a fully developed economy, and none of the countries is fully autonomous, neither Germany nor the USA. We will not be also us.

Are the prospects for the development of the Polish economy dependent on the adoption or non-adoption of the euro?

We live in a period of change in the paradigm of globalization. There is a growing competition between the US and China, which is of great importance for the world order, not only trade but also monetary. Currently, the dollar is the main reserve currency of the world, which gives huge benefits to the American economy and is one of the sources of local prosperity. The second reserve currency is the euro. If this currency overcame its internal weaknesses, it could not take only 35-40 per cent of the dollar due to increasing doubts about the dollar global reserves. Behind these currencies is the yuan, for which China has great ambitions, but investors have no fewer doubts about, for example, the security of deposits. But in the future, it will probably change. In such a world space for other currencies narrows. The benefits of your own currency are already largely illusory. The zloty currency facilitates our development in the sense that it is an undervalued currency, which attracts investments, albeit at the expense of Polish households’ wealth. The other side of this coin is the maintenance of a relatively low level of wages in our economy. In the long term, our goal should be to strive for wages and prosperity comparable to the rest of the continent, which will require a gradual appreciation – not only in terms of purchasing power but in nominal terms. Consistent, not necessarily rapid, striving to adopt the euro will be conducive to this.

The dispute is not about whether to approve the euro because in theory Poland is obliged to do so, but the deadline for this operation.

This discussion is not very important at the moment, because it is politically unfeasible. It’s good to know, however, that both the slow and quick adoption of the euro has its advantages and disadvantages that need to be weighed. It is probably easier to maintain wage competitiveness when you have your own currency, which investors will always value below its real potential, but even in the euro area, it would be possible if we would enter it at a favourable rate. At the same time, we should not overestimate the real autonomy of our monetary policy at the present time. It is largely illusory. It is not a coincidence that there are few currencies in the world with a floating exchange rate. Most are linked to the euro or the dollar. The adoption of the euro is mainly a political decision, not an economic one, and this is not the climate at the moment. That is why I consider turning this discussion fairly barren. It is better to deal with the structural and institutional problems of our economy, which are not lacking, and macroeconomic and macro-prudential policy as if we had to enter the euro, not really involving emotions in this process as such.

Some economists believe that the global economy has been in a phase of prolonged stagnation. Some even think that soon we will have to learn to live in a world of shrinking economies because the current increase in production and consumption simply cannot be maintained. Is it possible that for this reason, Poland will never catch up with Western countries in terms of the level of development?

 

The history of mankind does not confirm this hypothesis. People, like other species of animals, tend to exploit their environment as much as possible, they want more and more and do not know moderation. I consider myself an ecologist but I try to be realistic, so I think that if we are to maintain some balance of the global ecosystem and to keep, for example, the biodiversity of our planet shrinking at an alarming rate and overcome the global warming problem, we need political and technical solutions, not dreams of turning people into anchorites, because it will not happen. Only in rich societies, when the basic needs of people are satisfied, they begin to really value clean air, water, nature and worry about the problem of endangered species or ocean contamination with plastic. And only technically advanced societies can find the answer to these problems. We will not stop the ambition of people in developing countries who want to get rich, just as we do not restrain ourselves when we think about our own career or standard of living. We can, however, take care to find solutions that meet the needs of the environment and development. Will it work? I do not know, but Poland, with its ambition and a real chance of becoming a fully developed country by 2050, can not pretend that it is still a poor country and is not responsible for the issues of sustainable development. 30 years have passed and the transformation is behind us.

 

Maciej Bukowski is a PhD of economic sciences, president of WiseEuropa.

The above text is a version of the conversation extended by Dr Maciej Bukowski, which appeared in the “Plus Minus” on June 1, 2019.

Source: https://www.rp.pl/Plus-Minus/305309889-Maciej-Bukowski-Polska-za-30-lat-Kluczem-globalizacja.html

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