Concerned like a Polish entrepreneur

No capital, high debt repayments, too few orders, low demand, a poorly qualified workforce or simply inadequate infrastructure? Which of these factors could possibly be causing the pessimism of small and medium business owners in Poland? The answer? None of them. The greatest hindrance to business development is bureaucracy and an erratic legal system By Sergiusz Prokurat Entrepreneurship is considered to be one of the main factors that promotes financial growth and economic competition. Some economists describe it as the fourth factor of production besides labor, capital and land. It’s hard to disagree with the hypothesis of renowned Austrian economist Joseph Schumpeter, that for entrepreneurs to be able to work effectively and benefit society, they need favorable conditions. The government is responsible for creating those conditions, while bureaucrats oversee the verification and execution of such provisions. However, it is often the case that it is the bureaucrats who coerce the government. Absurd as it may seem, there are many cases of the tail wagging the dog. For example, in 2014, the Inter-Ministry Team for Domicile Rule Lifting Preparation stated that… it would be better to leave the reporting duty as is. “Reporting”, i.e. reporting the official residence of a citizen, should be long gone as a relic of socialism. This administrative procedure associated with the obligation to register an entrepreneur or even a normal citizen’s residence is understood to be his declared address, and not an administrative inscription. It’s mandatory. For bureaucrats or courts this is a comfortable fiction. They don’t have to search for citizens, they don’t even have to move from behind their desks, because they can always send a letter to the given address. There is also the “fiction of delivery,” i.e. a letter sent twice is deemed delivered, even if it has not in fact been read. This is how entrepreneurs are informed about decisions which may spell trouble, such as court hearings, tax or administrative decisions. The perpetuation of “reporting” releases the bureaucrat from any responsibility to look for the person in question. [caption id="attachment_76957" align="alignright" width="215"] shutterstock[/caption] In Poland, small and medium businesses, which create nearly 67 percent of GDP and 75 percent of jobs, struggle to survive on the market. As it turns out, 97 percent of Polish entrepreneurs complain about the absurd nature of Polish law, as revealed by a report published by Tax Care in 2015. In the Paying Taxes 2013 report from the World Bank and PwC, Poles spend as much as 286 hours annually doing their taxes. On this front they come out worse than Russia, France, the Netherlands or the US to name but a few. Entrepreneurs complain about red tape, endless paperwork and the limited expertise of bureaucrats, but also legal absurdities when filing their taxes. According to company owners, the biggest obstacle to running a business is useless bureaucracy and the rarity of online processing utilized in public administration. They point out that it remains impossible to process even the most basic of cases via the internet in Poland, having to actually visit the relevant office in person. And complaining isn’t the end of it. This isn’t passive complaining, but active seeking. Poles are simply doing their thing. Polish entrepreneurs are electing to register their companies abroad rather than in Poland. Bureaucracy, erratic laws, legal barriers, excessive taxes and labor costs – these are the main reasons Polish business is fleeing abroad – said Andrzej Sadowski from the Adam Smith Center. It certainly seems to be true. For a few years now we have been observing the “flight” of Polish firms abroad. Most commonly to the UK, the Czech Republic, Slovakia and Cyprus. The majority are registered in the UK. Their number is estimated at 60,000. But why there? Because, according to statistics, the UK is number one in Europe in terms of the ease of doing business. The system is much friendlier than in Poland, tax free earnings amount to around PLN 40,000, with the equivalent in Poland being 3,000. In the UK an entrepreneur pays around PLN 60 a month for social and retirement insurance, while in Poland it’s closer to PLN 1,200. In the Netherlands, Polish run businesses number nearly 8,000. So too in Norway. Sadowski also states that Poles have become leaders in establishing businesses in Germany, overtaking Turks, “After the wave of emigration of average citizens, which took place after Poland’s accession into the EU, we are seeing the migration of entrepreneurs. We are seeing a phenomenon of competition in systemic solutions in Europe and Poland, by continuing to resist economic reforms, it is leading, I dare say, to an, ’economic apartheid.’ We are losing our most valuable resource: educated, dynamic Poles,” said Sadowski. What’s interesting is that on paper the situation for Polish business owners doesn’t look that bad, or at least better than during communism, which strangled economic activity. The question is whether it is also better than the period immediately after the fall of communism? According to Sadowski this isn’t a sure thing, “In 1988 the Wilczek law was passed, which freed economic activity previously enslaved by communism. Now we have an over regulated economy. Polish entrepreneurs need a new Wilczek law,” Sadowski explained. On the other hand, numerous organizations publish reports on the ease of conducting business and institutional conditions in countries all over the world. Each country is rated by how existing and effective legislation boosts entrepreneurship and the free market. These are troublesome institutional constructs, because it is difficult to incorporate various qualitative measures and reduce them to a common denominator. Nevertheless, the World Bank rates the Polish tax system at 113 (out of 200 countries), whereas in the general classification of the Doing Business report, Poland ranks at 32. In the report we read that starting a business takes 30 days, its cost is 12.9 percent of annual per capita income. A report from the Heritage Foundation, the Index of Economic Freedom, stresses that despite the fact that trade policy is basically the same as the EU’s, biotechnological and pharmaceutical regulations exceed even EU standards. Personal tax is high, business tax is low. Privatization and deregulation have slowed down, and the government’s size can’t be described as small. Poland was also rated negatively for the regulation of taxi prices and pharmaceuticals. The same goes for the labor market, where a huge stumbling block is high labor costs. Credit and investment markets are not that bad, and property is relatively well protected. The key analysis of leading global research institutes rate the Polish economy as rather slow, placing it in the top 50 countries where it’s easiest to do business. In the last 25 years many reforms have been implemented, but that does not mean that entrepreneurship in Poland is free of problems. Limited bureaucratic responsibility, liberal interpretations of regulations and protracted litigation are the largest barriers in administrative and bureaucratic rules – as found by GfK Polonia for the Business Center Club in a representative sample of Polish business people in 2014. Without a doubt Poland should increase the competitiveness of its economy by increasing innovation, which is low compared to its effectiveness. But this is hard to do if entrepreneurs have to waste their time on absurd regulations. Time is precious – said Sadowski – we can see its value by looking at Ukraine.  u