By: Robert John Zagar Ph.D., M.P.H., and Agata Karolina Zagar M.B.A.
Twenty five years ago Polish communism died. Fifteen years ago Poland joined the North Atlantic Treaty Organization (NATO), enjoying the military unity with the British Commonwealth, France, Germany, the Scandinavian countries, the United States (U.S.), and other members to defend Polish territory. Ten years ago the Polish White Eagle became part of the European Union (E.U.) flag of a blue background with the gold stars representing each member. Poland now has the financial integrity that guarantees the economic progress up to 2004 will continue for at least another generation.
Poland is now an influential, peaceful, powerful and prosperous nation, part of the nexus of great countries in the world. Yet few Americans and Europeans are aware of this marvelous success story. Poland’s golden age started with the “shock therapy” of 1989-1992, in which the new Solidarity government instituted market-oriented reforms that included removing price controls, restraining wage increases, slashing subsidies, balancing the budget, and making an even, level playing field for foreign, government, public and private funding in Poland. Poland is the only European country to have a positive gross domestic product (GDP) from 1992 through 2014!
Poland’s Economic Miracle
This year Poland’s growth is projected at 4% and the GDP per person at purchasing power parity or equality has doubled since Walesa took power in 1989 to 67% of the E.U. average. What has happened in that time is not short of a miracle: modernization of the transport infrastructure; restructuring the ailing state-owned industrial giants; improving the banking, financial, and insurance sectors; investing in information technology; modernizing the rich agriculture.
In 2008 when the U.S. and the E.U. economies contracted, 100K Chicagoan Poles returned to rebuild their Homeland. There was a Renaissance in building both private and public sector construction, large and small, throughout Poland. Krakow’s largest supermall is a prime example. One of the key, bright fiscal and monetary policies was the flexible exchange rate of the zloty which is allowed to rise and fall, like the E.U. or U.S. dollar without the government debt of either the E.U. or U.S.
There is still a modest exposure to international trade and low household and corporate debt, unlike the U.S. or the rest of the E.U. The GDP of Poland went up 500% from 1989 to 2014, roughly 20% per year. Over the quarter of a century Poland became free of its communist yoke. This growth matches or exceeds the post WWII economic jump Harvard economics professor Kenneth Galbraith marveled at as he witnessed the rebuilding of Poland. Poland is seen as one of the half a dozen powerful E.U. countries that include France, Germany, Great Britain, Italy and Spain despite their citizens’ unawareness of Poland’s newfound stature.
But yet much needs to be done. Poland benefiting from $139B in E.U. funds and another $155B expected over the next 6 years needs to focus on its farms and universities. For now the main plank of its growth is inexpensive, educated labor allowing outsourcing and subcontracting. Poland must also increase its average savings of 17% of GDP and average investment rate of 21% of GDP, which are below E.U. levels. Research and development is less than a percent and must increase to levels closer to 2 or 3% over the next decade.
Productivity and efficiency is only 60% that of the E.U. countries because of poorer equipment, management and training. Additionally, Poland must develop more global companies like the world’s largest copper and silver miner KGHM. Poland might take an economic cue from the Russians and offer a stipend to pregnant women, since it has one of the lowest fertility rates in the E.U. Also, Poland must slim down its bloated public sector just like the U.S. is doing to its Defense Department in the light of our exit from Iraq and soon to be Afghanistan along with the contraction of local government spending during the 2008 economic downturn.
So let’s look at some of the individual sectors, Gdansk, Radom, Katowice, Mielec and Wroclaw, the poorer rural areas in the East, agriculture, the Roman Catholic Church, and the more flexible, outgoing Poland of the future.
Gdansk, Radom, Katowice, Mielec, and Wroclaw.
Touring Gdansk and Gdynia over the past decades, one can see the decaying buildings that housed the shipbuilding industries, which are not much different than the American “rustbelt” Northern cities that went through a transformation as industry migrated to cheaper overseas sources of labor, and may be reforming with the return of “robotic” plants. Gdansk now only employs about a 1000 shipbuilders, but Sunreef Yachts makes luxury catamarans for about $4M launching 11 ultra-modern sleek ships last year.
Gdansk is also a hub for offshoring and outsourcing. Poland employs as many as Bulgaria, Croatia, Czech Republic, Hungary, Romania, Slovakia and Slovenia combined with inexpensive, educated workers, about 120,000 workers. Other successes include Hugo Boss shoemaking in Radom, MAN heavy trucks and urban bus manufacturing in 3 factories, among others, which are some of the many exports that make up 46% of Poland’s GDP.
Katowice like Gdansk turned to offshoring and outsourcing with 12,000 working in 56 business service centers offering customer care to research and development. Katowice offers a future talent pool of students, transport infrastructure, low wages and inexpensive business real estate. Wroclaw has become a research and development hub for Balluff sensors, PPG industrial coatings, and Whirlpool’s household appliances. EIT+ is a new research center focusing on bio and nanotechnology, much like Northwestern University’s industrial park in Evanston, Illinois of the U.S. Mielec has United Technology’s Sikorsky plant making aircraft like the Blackhawk helicopters.
Wroclaw also has livechatinc.com, a chat customer service, Pesa, a locomotive manufacturer, and Solaris, a bus and tram maker, recently described in Financial Times. Just the way Western Europe used the U.S. General Marshall Plan funds to rebuild, Poland has taken E.U. bonds to make innovative, international companies and improve its infrastructure.
However, the picture in Poland is not completely rosy. Kopalnia Weglowa in Silesia, which employs 56,000 miners, reported a $315M loss in 2013. It along with the other large employers, like the postal service and the railways are doing poorly and need reform. Just as competition forced change in these same U.S. economic sectors (Amtrak and U.S.P.O.) so too Poland must follow suit to offer a brighter future to the next Polish generation.
Unifying the East with the Western Resources
Despite a large influx of E.U. funds into agriculture, Poland faces the same challenge that Germany faced after the fall of the Berlin Wall, unification of the poorer east with the more economically developed west with its greater cities, infrastructure, schools, transportation system, and universities. Eastern Poland has had over $3B in structural and cohesion investment from the E.U. and another $1/2 billion from Poland to improve highways, internet access and encourage business investment. Without continued investment, eastern Poles will continue to emigrate either to Poland or abroad. Lublin’s new airport and universities, information technology and business-process-outsourcing firms like Syntea are a good start toward what Germany has already accomplished, unification of its west and east into a joint economic powerhouse.
Reforming Polish Agricultural Social Security
Poland is the greatest exporter of apples. It overtook China in 2013 with about 1/3 going abroad, and 1/2 of these exported apples sent to Russia. From cereals to meat, Poland exports $27B of its farm products. All one has to do is go to any Polish American supermarket on the north and southwest sides of Chicago to see the variety of exported Polish agricultural products, the canned vegetables and fruits, fruit juices, fish, meat, coffee, tea, dairy products, candies, and pastries. In the past year, Poland increased its exports 11%. Polish agri-business is one of the largest single beneficiaries of the E.U. membership.
From 2007 to 2013 Polish farmers received $55B in subsidies. And they expect to receive another $60B from 2014 to 2020. Direct cash payments regardless of need has resulted in a tripling of agricultural incomes, bigger farms, modernized machinery, tractors, combines, milking machines, etc. Poland has doubled its poultry production and is E.U.s leading producer of soft fruit and cultivated mushrooms. But the agricultural reform needs some fine tuning, since farming only accounts for 3% of the GDP and 12% of the jobs (compared with the 46% of manufactured exports mentioned earlier). Most farms are still less than 20 hectares. Many hang on to the small plots to retain the highly favorable social security system, which must be reformed. Just the way our U.S. Congress pares away at unnecessary agricultural subsidies, so to Poland must change these direct cash payments to incentivize economic growth, job expansion and profit, so that agriculture could bring a greater percentage of the GDP to help the country grow its other sectors.
Few foreigners understand the central role of the Roman Catholic Church in Poland. When Kosciuszko surrendered to Russia’s Catherine the Great, Poland was partitioned and disappeared off the maps of Europe for 123 years. The Roman Catholic Church kept the “Heart of Europe, God’s Playground” in its hands, preserving and treasuring Polish culture, geography, history, language and literature for over that century. Just like the brave Poles who rebuilt the annihilated Warsaw after the Russian Army watched the Nazis systematically bomb the modern capital of Poland, the Roman Catholic Church remains an integral part of Polish life. During the Nazi and Communist occupations, the church was the only place where Poles could hear a semblance of the truth. Few foreigners even know that Cardinal Wyszynski with 2 bishops from 1963 through 1966, while under house arrest in a convent, plotted the historical beginnings of Solidarity.
As documented in his Prison Diaries he tells of meeting with 2 other bishops and after release going diocese by diocese, parish by parish, and recatechize Poland in the Great Novena. Those same Poles realized decades later that the businesspersons, farmers, fishermen, miners, professors, ship-builders, students and others had something in common, whether rich or poor, less informed or wise. They were Polish Catholics. The children of this reformation, marking the Millennium of Poles converting to Christianity 966-1966, later formed Solidarity, the movement that was the fulcrum of the 20th century in Europe, the nonviolent workers revolution that ended Communism as a major economic and political force in central and Eastern Europe, something that still irks most Russians including Putin.
Some 95% of Poland’s 38M are baptized. Weekly, a third of Poles attend Mass. Although in 1989, 90% of Poles trusted the Church, by 1993 only 40% did. Poles tend to go to church for meditation and prayer rather than for practical help. In 1955 the Polish Church declared quite clearly the separation of Church and state. Although in 1999, there were 4,800 Polish seminarians, in 2012, there are 3,000. Poland trains 1/4 of E.U.s priests. Polish priests now make up 95% of the E.U.s Roman Catholic priests. E.U. seminaries are sparsely attended. Poland still sends seminarians to the Chicago Archdiocese to return its support of the Motherland over 150 years.
Poland: The Heart of Europe
Just as Jagiellonian Poland’s huge empire that played an important part in the history of sixteenth century Europe, so too Poland continues to be a major actor in international politics. With Poland playing a central role in the death of communist rule in the Soviet bloc, it has transformed itself into a centrally planned economy and now a free-market democracy.
As Polish international stature grows, self-confidence, enthusiasm and independence continue to thrive in a cautious and pragmatic approach. Poland must continue to develop its military devoting a greater percentage of its GDP to protecting its sovereignty. Poland must wait out our current U.S. President for a more accommodating leadership which believes, like our current military, that Poland requires a U.S. military base along with missile-defense systems located within its borders (promised by Clinton and the Bush’s). American military leaders know firsthand the price Poland paid to safeguard the world from terrorism in Iraq and Afghanistan.
Needless to say, Poland must continue to keep the zloty free floating lest it fall into the morass of E.U. economics with their weak southern countries of Greece, Ireland, Italy and Spain. These countries don’t collect their taxes, haven’t reformed their banking systems, refuse to modify the domination of the country’s economy by a select elite group of families, nor improve their workers’ productivity. Poland won’t likely convert to the E.U. dollar because it will take a constitutional amendment. This is something the thrifty Poles are not likely to readily vote for. Perhaps the old Polish motto of looking side-to-side and forward and backward gives Poles the insight of “what not to do” for their E.U. future.
All long-term projections demonstrate that Poland will continue to grow faster than the E.U. through 2030 with about a 3% economic growth annually possibly until 2050. Like some progressive Polish politicians, Poland must provide more nursery schools and crèches. Young Poles must feel more financially secure, so that the Polish fertility rate approaches the replacement level of 2. Poles must also find work for their youth. Many Poles now migrate to other E.U. countries and take jobs below their qualification.
As the wage gap between Poland and the rest of the E.U. narrows, perhaps some of the 20M Polish dispora will return because of E.U.s universal pension and insurance system. Around 600,000 Ukranian, Moldovian, and Belarussians work in Poland. Only 2% of Poland is foreign-born, which may be to Poland’s advantage.
Poland does not have the problems with Muslim dissent that have plagued the rest of the E.U. That is only now beginning to change its immigration policies among some of its members to avoid the conflicts already experienced. Poland has avoided the divisiveness of the heterogeneous U.S. Perhaps history has taught Poland some lessons by being geographically at the center of Europe to avoid the pitfalls of its neighbors.
Poland’s secondary education is ranked sixth in the E.U. and fifteenth in the world, yet its universities do not compete on an international level. Only the University of Warsaw and the Jagiellonian University in Krakow are in the worlds’ top 400 in spite of Krakow’s college being one of E.U.s first 7 centuries ago.
Just as the University of Minnesota in the Twin Cities is over burdened with administrators, a phenomena that has driven up college tuition throughout the U.S., so to Marie-Curie Sklodowska University of Lublin has 3200 workers, only 1/2 who are teachers. For any college or university the ideal amount of administrators is about 25% or less. We personally noted the resistance to change as we reached out to both the Jagiellonian University and the Polish Foreign Ministry personnel at the highest level encouraging them to develop joint relationships with one of the leading entrepreneurship centers in the world and were politely ignored even at the Presidential and Cabinet level. Poland has a way to go yet before its universities can compete on the global scene.
Poland as a Leader
Despite the WWII wounds, Germany and Poland are bound together politically and economically. Just like the friendship between Pope John Paul II and the Pope Benedict XVI, Cardinal Ratzinger, Tusk and Merkel have a solid relationship. German leader Mrs. Angela Merkel is 1/4 Polish. Her grandfather, Ludwik Kazmierczak fought in the Polish army, later Germanizing the name to Ludwig Kasner. German foreign minister Steinmeier and his Polish counterpart the Oxford trained Sikorski are promoting the “Weimar” triangle of France, Germany and Poland.
Furthermore, Tusk and Sikorski are doing the same with the “Visegrad” group of Czech Republic, Hungary, Poland and Slovakia. And Poland is forging closer relations with Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine. Events of the past few decades have enhanced Poland’s role with NATO, E.U. and U.S. Poland has longstanding warnings about stronger defense and also would like visa restrictions lifted by the U.S.
The future looks bright, but reforms in agriculture, increasing fertility, youth employment, university and entrepreneurship reform, slimming down government waste, unifying the east with the western resources along with development of global industrial leaders will bring Poland into the center of the twenty-first century. These are the icing on the cake that has already been baked. Poles can hold their heads high among the worlds’ leaders even when they are not aware of Poland’s new found might. Being open to new ideas while maintaining a conservative, educated, homogenous, and Roman Catholic populace will continue to allow Poland to be what Pope John Paul II the Great asked in his last visit to his beloved Krakow, a force of moral character for the E.U. and the world.