Janusz Lewandowski, Chairman of the Economic Council to the Prime Minister of Poland talks with WBJ Observer about not buying into pessimistic views regarding the future of the market economy in democratic countries
Interview by Ewa Boniecka
WBJ Observer: There is an ongoing debate in the European Union regarding further development of the market economy in our part of the world. Christine Lagarde has said, “we should fix current capitalism.” Meanwhile, in Poland, Marek Belka has said that we must end “exploitative capitalism.” And economists are saying that our economic success, which is based on cheap labor, is coming to an end and we need a new development strategy. What is your reaction to this as the chief of our Prime Minister’s Economic Council?
Janusz Lewandowski: There is no reason for our country to yield to pessimistic estimates and forecasts regarding the future of the market economy. There is a fashion for Cassandran prophecies and this is a post-traumatic legacy of the economic crisis which started in the US, but hit Europe hardest after 2008. The source of the crisis was in financial markets that strayed away from the real economy. Hence, the proper reaction is to regulate financial operations, that have little to do with the quality of life of regular citizens. These operations create problems (such as bank failures) which end up being corrected by the taxpayer.
This does not concern Poland, which has a well-regulated financial system. Poland owes its GDP growth, which has risen by some 100 percent since 1989, to the market economy. Likewise, Poles’ standard of living has risen from one-third of the EU average to two-thirds. Instead of criticizing the system, we need to resolve specific issues. One of them is the competitive advantage built on cheap labor, typical for economies that are catching up in the developmental race. Our Economic Council is working on solutions to the problems facing us.
What is the most essential and viable strategy for Poland and the EU in the current economic climate? How would you describe Civic Platform’s (PO) policy to Polish voters?
Donald Tusk’s “Warm Water” policy and Mazowiecki’s “Thick Line” have both been misinterpreted. Tusk told Poles that after the “shock therapy” of 1989 and 1990, which drastically changed our country and became a huge challenge for Polish families raised in communist Poland. Tusk meant to say that Poles were due for a time of stabilization, not another revolution. The “Warm Water” metaphor was misinterpreted as a failure.
Actually, considering that Tusk’s government was in power during the biggest economic crisis since World War II, its time in office was not a failure at all. Effective policies that defended Poland against the crisis were commended around the world. “Warm Water,” in other words – stability in unstable times, will be appreciated only when irresponsible policy decisions cut short the warm water in the faucet – which, I certainly hope doesn’t happen. In effect, we have been witness to an extraordinary modernization of Poland in the last few years. It is apparent to anyone who is not blinded by ideology. We will not be able to convince the blind. Our program is addressed to people who are proud of our common successes in the last quarter century, but understand that the “re-construction of Poland” is an ongoing concern.
You are an influential person in the EU. Which policy directions in the EU and the euro zone’s strategy do you support and how will these effect our future economic development?
The euro zone is part of the European Union and, under the influence of the crisis, it is changing faster than the rest of the Union. The common currency zone must change in order to survive. Today, this new architecture – fiscal discipline, stringent demands of security in banking, limits on financial speculation – all of this is in response to the Greek crisis. It is the correct path. Spain, Ireland and Portugal have regained their credibility and today, the entire euro zone offers a favorable economic environment for Poland. At the same time, this is a challenge, which suggests a “double-sided Europe.” We are faced with a strategic decision – what is Poland’s role here, is it possible to co-manage the fate of the Union while being outside the core of it, which is the monetary union? I doubt it, but the election campaign is not the right time for serious discussion on the topic.
During the current election campaign, confrontations between the main political parties seem to be taking precedence over economic reality. Discussions on economic strategies for Poland are nonexistent. Rather, both parties seem to be focused on making pre-election promises of social aid. Law and Justice (PiS) seem to be the most inclined to this, but the current Prime Minister is also making generous promises about the construction of affordable housing for rent, or the lowering of personal income tax for the poorest. Is Civic Platform making a shift towards social issues and the role of the government in a free market economy?
It is not right to place the promises of PiS and the proposals of PO in the same basket. They are worlds apart in the sense of practicality and responsibility. I’m deeply concerned when it comes to the bandying about of election promises, which were evident in the presidential campaign of President Duda. These initiatives are already predicted to cost PLN 50 billion annually, which would result in the doubling of the budget deficit.
They’re also disastrous with regard to the retirement system in our country, which is aging very fast, and the banking system. In the event that a conversion of franc-denominated mortgage loans at the initial loan exchange rate will take place it would result in the ruining of the state’s public finances, which recently saw a lifting of the Union’s excessive deficit procedure. To my surprise, these senseless promises are maintained during parliamentary campaigns. It is important for the media to differentiate PiS empty promises from the activity of PO. Today, we are implementing the Prime Minister’s policy plans, while the autumn program will be within the possibilities of our budget.
The Sejm may be on its way to accepting a ban on temporary work contracts, but many economists say that a flexible employment market is best for the Polish economy, stating that employers want to improve work culture. This in turn may result in higher pay. What is your opinion on the matter?
Civil law contracts, misnamed as “trash contracts,” stabilized our labor market during the crisis. The alternative would be illegal employment or the lack of work. Temporary work contracts are not the problem, but their misuse is, as is the lack of social protection for workers. One of the weaknesses of the Polish labor market is disproportionate non-wage costs (i.e. tax wedge) in the low-pay group, which affects our youth.
These problems are easier to solve now, as unemployment is low and the economy is picking up speed. This is the direction of PO’s program. We are not throwing the baby out with the bathwater. We can raise standards of employment and salaries without losing elasticity in the labor market. We are civilizing the market, which includes various forms of employment.
The “Intelligent Development” program has been launched. It aims to unite science with business. The Union’s fund for these programs is also growing. How can we make sure that our administration is able to use this wisely?
The allocation of funds of the European financial framework for 2014-2020 shows that we are trying to reach for new resources of Polish economic growth. Low cost labor will remain our main asset in the coming years, but it’s not a major premise for consistent competitiveness. Hence, our engagement in broadly-defined innovation, which is not only about new technology, but may also result in improved business models, production organization as well as more effective distribution and sales channels. Such innovation is not lacking in Poland, since we’ve noted an increase in exports to western markets, which tend to be more demanding.
Implementation of technological innovation requires cooperation between academia and business and such is the condition of receiving €8.6 billion in funds from the “Intelligent Development” EU program. Additional possibilities are available within regional programs, which amount to €31.2 billion. Supporting innovation is not just done through public funds, but also in the form of tax breaks for innovation or quicker amortization claims.
Another significant issue is the restructurization of mining and financing the coal mining company Kompania Węglowa. Poland is a coal-burning country, which conflicts with the EU’s climate policy. How will we reach a compromise?
Poland is seeking a rebalancing of the climate and energy policies of the EU. Other countries, which have similar interests, are hiding behind our back. Tensions between Warsaw and Brussels are unavoidable. These will surface with an increase in the Union’s ecological and climate ambitions over and above industrial competitiveness, which can be seen in interventions that undermine previously agreed upon rules (i.e. ETS – the Emissions Trading System). We are consistently forced to reach for new special concessions and solutions which allow for modernization of our energy sector, which happens to be based on coal. With the perspective of low coal prices, restructurization of our mining sector is not needed. The compromise we have put in place at Kompania Węglowa is a step in this direction, but also shows the strength of labor unions and the tendency of the opposition to politicize this issue. I’m not in favor of unconditionally tying coal mining with our energy sector, as the latter is due for reorganization.
What tax law changes is the government implementing and how do you evaluate Law and Justice’s proposal for a tax on banks and large supermarkets? Can significant funds be raised through such measures and how will this affect the condition of banks and prices on supermarket shelves?
The new tax legislation and the act on business activity form the legal foundations on which we should build a new quality of relations between administration and business. Not only are we aiming for resolutions of conflicts in favor of the taxpayer, but a general approach that posits the taxpayer’s honesty and, consequently, a proper approach for tax offices in auditing and dealing with entrepreneurs.
Law and Justice’s proposals have nothing to do with favorable conditions for business. It is, of course, possible to exploit banks and large supermarkets for tax revenue, but one should take heed of the side effects. That would influence the banking system, which should remain a safe depository for Polish savings and its main source of credit for economic activity. Likewise, there may be side effects for supermarkets, which may pass on the costs to Polish suppliers, employees or raise prices. Populist moves are usually positive initiatives that lead to unhappy endings.
Economically speaking, in what league do you see Poland in four to five years? Poland will probably not enter the euro zone in that time, so we must be active on multiple platforms. Will pessimism prevail in Europe regarding the Union? Or will the desire to work collectively in favor of strengthening Europe, with Poland’s active role in this, prevail?
Poland has reached Europe’s superleague. This is proven by EU posts held by our politicians – the European Council President, a strong zone of influence in Parliament, the European Commission and other institutions – in addition to the effective defense of Polish interests in the budget battle or efforts in forming an energy union. It is the result of many years of effort, of building trust in Poland as a solid and positive member of the European community. It’s easy to destroy these hard-won successes. The consolidation of our position requires continuity in our foreign policies and further efforts at European solidarity in the face of unfavorable geopolitics. Our biggest challenge in the next few years will be to retain our superleague status with the rather foggy perspective of entering the euro zone, which we are obliged to do according to the EU treaty.