Performance Review
Two years ago this month, the Economy Ministry was born from an innovative plan to reorganize the government, making it more responsive to the needs of a changing, market-oriented economy.
However, with the ministry's birthday at hand, analysts and economists worry that the department is not the streamlined operation it was designed to be, but a cumbersome structure with the potential to drag down a booming economy.
The ministries of Economy and Treasury, both of which were created under the government reorganization, are rife with problems, these analysts said. Their duties often blur, and political infighting and even ineptness hinder policy decision making, a danger that could complicate such tasks as the European Union (EU) accession process. The Economy Ministry itself is so inefficient, these economists said, that it might as well be folded with its sister agencies into one ministry.
"We really don't need three ministers (Finance, Economy and Treasury) dealing with the economy," said Miroslaw Gronicki, a senior researcher at the Harvard Institute for International Development and the Center for Social and Economic Analysis (CASE) as well as a member of the macroeconomic committee at the Finance Ministry. "We should have one ministry like the U.S. Treasury that combines all the activities."
But not all government observers are so down on the two-year-old ministry. Nor do they think that the government needs to roll its economic functions back into one super ministry.
Impossible, said Deputy Economy Minister Jerzy Eysymontt, of such a suggestion. Combining the three ministries that move the economy would create a bloated ministry of more than 50,000 people.
"If you have such a large institution, it is hard to coordinate all its units," he said. The ministries have their problems, he said, but so do governments everywhere.
"Centralizing the ministries? Nobody would welcome it," added George Blazyca, coordinator of the Center for Contemporary European Studies at the University of Paisley near Glasgow, Scotland. "It would hearken back to the old system. Legislators were against anything that smacked of planning."
Even if the answer for how best to steer the economy is somewhere between the extremes of one or three ministries, it is clear that the original intention of the government reshuffle undertaken in 1997 has warped somewhat.
Under the reorganization plan, five institutions would steer Poland's economy, one of the fastest-growing in Central and Eastern Europe. Finance was to have a narrow brief, focusing on the budget and overseeing day-to-day financial operations of the government. The Treasury Ministry would handle privatization and be the holder of state-owned assets. The National Bank of Poland (NBP) would continue in its role as an independent banking regulator and the director of monetary policy. The Government Center for Strategic Studies (RCSS) was meant to be a think tank and in many ways a contrarian one. Its purpose, one economist said, is to be the thorn in the sides of the rest of the ministries.
The fifth institution, the Economy Ministry, was supposed to take a longer term, strategic view of the economy. Legislators melded the communist-era Ministry of Trade and Industry, the Ministry of International Relations, and the Central Planning Office into the all-encompassing Economy Ministry. The ministry is supposed to be responsible for drafting economic policy for international trade and specialized sectors like agriculture and energy, and to promote economic growth in general. It is also supposed to develop long-term planning.
Plans vs. reality
The division of powers was clear on paper. But it did not take into account institutional desires to protect power bases, the personalities and backgrounds of the ministers who would run the agencies and political reality.
Today, the NBP is clear in its role. And the Treasury Ministry is handling privatization issues. The RCSS is a thorn in the side of other ministries, but it is largely ineffectual because it does not have real power and its leader, Jerzy Kropiwnicki, is seen as an economic lightweight.
The Finance Ministry, previously the real power in all things economic, has retained its power and is the office that runs both the short-term and long-term economic shows. In addition to its historical role as the economic management base, the ministry has also had a large role because its minister, Leszek Balcerowicz, is seen as one of the shining economic lights in Poland's transformation to a market economy and is leader of the junior government coalition partner, the Freedom Union (UW).
With such a powerful leader, the Finance Ministry has pushed the Economy Ministry, run by Solidarity Election Action (AWS) member Janusz Steinhoff, into a secondary role. This has led to confusion over the ministry's role and among many observers uncertainty as to what exactly it does.
"I remember trying for a time to follow the new formation," Blazyca said. "It is a bit odd now, though it was exciting at the time. I don't find the Economy Ministry terribly important."
Few, in fact, find the ministry important. While most analysts do not advocate a return to an umbrella organization, they agree the Economy Ministry could be eradicated given how much its importance has diminished.
Still, many believe it would be better to create a clear purpose for the ministry rather than trying to create super ministries.
Governments always amalgamate agencies and Poland certainly could, but blaming the Economy Ministry for the country's economic problems is a "strange line of attack," said Nomura Securities analyst Michael Gomulka. "Of course I could see an argument for folding the Economy and Finance ministries into one," he said, "but right now that could be carte blanche for a kind of destruction of what they tried to achieve over the last two years."
Let the Economy Ministry be swallowed up, but don't expect the government's problems to go away, Gomulka said.
"Even if the ministry is not running smoothly, it has not prevented successful monetary policy here," he added. He warned a move to close the ministry should be taken with caution.
Old thinking
Not that anyone is actively thinking of eliminating the Economy Ministry. But as time goes by it becomes less relevant to the government's attempts to manage the economy. An economist at a major financial institution, who did not wish to be named, said the government simply doesn't need the ministry because it does not fill a needed role. The ministry's information is dated and the institution itself is "useless and misguided," the economist said.
The problem, Gronicki said, is that members of the old party system still fill the ranks there.
"Foreign trade, agriculture, industry, manufacturing, those guys are gathered in the Economy Ministry," he said. "They don't have a clue about what's going on."
The latest study released by the group offered "useless data" and "no analysis," Gronicki said.
Even the ministry's Eysymontt admitted that he did not know what was in the 1999 budget recommendations his agency prepared. Not, in many ways, that it would matter. As the budget made its way through the Sejm in recent weeks, it was the Finance Ministry that called the shots.
That is not such a problem, economists said, so long as there is a ministry that is shepherding a process. But when there is not a clear-cut leader for a task, the lack of a clear mandate at the Economy Ministry can be problematic.
According to the economist, the privatization of both the steel and coal industries stalled largely because ministries could not split their responsibilities. Poland, he added, cannot afford to waste time developing these areas.
Of course coal and steel need reform, Blazyca said, but the agriculture sector especially cries out for attention. Poland could use "some sensible micro-planning," he said, and not much has come from the Economy Ministry.
Lack of progress in these areas is not completely the ministry's fault, many concede. One of the biggest impediments comes from the RCSS, where the vocal Kropiwnicki opposes reform measures put forward by the central bank and the Finance Ministry, the economist said. The center is a worthless institution that houses not only the same old party members, but additional inept staff, and it is worse than before, the economist added.
The problem is the center is often dead wrong, the economist said. Right now it stands alone in its criticisms of Finance Minister Leszek Balcerowicz and the central bank.
"They have accused the tight fiscal policy of causing undue social hardship in some areas, and they have said the high interest rates slowed growth," the economist said. "They said the strong zloty slows exports, which they attribute to the current account deficit."
Such a view is in direct opposition to those put forward by the Organization for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF), which both agree Poland is on the right track to fiscal stability. A tightened budget, strong zloty and a cautious lowering of interest rates are what the country needs, the economist said.
If the Finance Ministry and the central bank followed the suggestions of the think tank, "it would be a sure sign there would be a crisis two years later," the economist warned, adding that there is no room for this type of political infighting.
But even if wrong in its outlook, some believe the RCSS does have a role to play. "There should be opposition," Gronicki said. "But not of the kind seen in this government - orthodox Keynesian and orthodox monetarist." Polemics lead to petty squabbles with no solutions, he added.
And there is plenty of room for controversy. The ministers of the Economy and Treasury ministries and the Center for Strategic Studies are all members of Solidarity Election Action (AWS). Balcerowicz is a member of the Freedom Union (UW). And Economy Minister Janusz Steinhoff has close ties to the Prime Minister Jerzy Buzek and the leader of AWS, Marian Krzaklewski. "That does have some impact," said Marek Matraszek, director of the Warsaw office of CEC Government Relations.
Usually, the impact is to further bolster the position of Balcerowicz, said Vlad Sadell, a senior economist at Daiwa Europe. "If the political resistance is saying we've got to do something otherwise our country is vulnerable to things like a Russian crisis, it only gives Balcerowicz the ammunition to enforce his reforms," he said.
But inter-ministry arguments aren't necessarily bickering, rather honest disagreements that eventually lead to compromise, some said.
"There is a cooperation between ministries," the Economy Ministry's Eysymontt said. "There would be no agreements without it. Politics is the art of compromise."
Defending the ministry
The Economy Ministry is not without achievements during its two years in existence, however. Matraszek said the Economy Ministry plays a pivotal role in moving the economy along.
For example, he said, the ministry has completed a proposal to overhaul the coal industry, now steeped in debt. Under the reform, as many as 25 mines will close and about 115,000 workers will be slashed from the 240,000-employee labor force. The ministry is also tackling issues related to the defense industry, he added. Finally, the ministry also relinquished some of its "arbitrary power" by agreeing with Finance Ministry recommendations to cut back the number of licenses required to start up or operate a business to six from 36.
"Broadly, it seems the right approach," Matraszek said about the current structure. "The ministry seems to be doing what it is supposed to do."
And Pawel Badzio, a spokesman for the Economy Ministry, said the ministry is not a conglomeration of hapless bureaucrats. "We have not postponed anything. We have met all EU obligations.
"The most important thing for Poland is changes that make privatization faster, and create new jobs, conditions and developments," he said. The Economy Ministry has been drafting a four-year plan that will guide the country through accession agreements, a proposal that Eysymontt sees as passing easily through the Sejm.
"Our focus is three things: to close the economic gap between the EU and Poland, full membership (in the EU), and active membership in NATO," Badzio said. "These four years will decide EU membership," he added.
The Economy Ministry's governmental counterparts are also against any moves to eliminate the agency.
Rafal Zagorny, undersecretary of state in the Finance Ministry, said he finds the thought of restructuring those agencies ridiculous. "Creating a super ministry? I cannot even think of the consequences because I cannot imagine such a situation," he said.
And no new method of reshuffling within the government is likely to work, Zagorny said. "Even if we finish privatization, some contracts are long term and some the treasury has a 30% to 40% stake in, though those will be sold later. Somebody needs to take care of that," he said.
However, with the ministry's birthday at hand, analysts and economists worry that the department is not the streamlined operation it was designed to be, but a cumbersome structure with the potential to drag down a booming economy.
The ministries of Economy and Treasury, both of which were created under the government reorganization, are rife with problems, these analysts said. Their duties often blur, and political infighting and even ineptness hinder policy decision making, a danger that could complicate such tasks as the European Union (EU) accession process. The Economy Ministry itself is so inefficient, these economists said, that it might as well be folded with its sister agencies into one ministry.
"We really don't need three ministers (Finance, Economy and Treasury) dealing with the economy," said Miroslaw Gronicki, a senior researcher at the Harvard Institute for International Development and the Center for Social and Economic Analysis (CASE) as well as a member of the macroeconomic committee at the Finance Ministry. "We should have one ministry like the U.S. Treasury that combines all the activities."
But not all government observers are so down on the two-year-old ministry. Nor do they think that the government needs to roll its economic functions back into one super ministry.
Impossible, said Deputy Economy Minister Jerzy Eysymontt, of such a suggestion. Combining the three ministries that move the economy would create a bloated ministry of more than 50,000 people.
"If you have such a large institution, it is hard to coordinate all its units," he said. The ministries have their problems, he said, but so do governments everywhere.
"Centralizing the ministries? Nobody would welcome it," added George Blazyca, coordinator of the Center for Contemporary European Studies at the University of Paisley near Glasgow, Scotland. "It would hearken back to the old system. Legislators were against anything that smacked of planning."
Even if the answer for how best to steer the economy is somewhere between the extremes of one or three ministries, it is clear that the original intention of the government reshuffle undertaken in 1997 has warped somewhat.
Under the reorganization plan, five institutions would steer Poland's economy, one of the fastest-growing in Central and Eastern Europe. Finance was to have a narrow brief, focusing on the budget and overseeing day-to-day financial operations of the government. The Treasury Ministry would handle privatization and be the holder of state-owned assets. The National Bank of Poland (NBP) would continue in its role as an independent banking regulator and the director of monetary policy. The Government Center for Strategic Studies (RCSS) was meant to be a think tank and in many ways a contrarian one. Its purpose, one economist said, is to be the thorn in the sides of the rest of the ministries.
The fifth institution, the Economy Ministry, was supposed to take a longer term, strategic view of the economy. Legislators melded the communist-era Ministry of Trade and Industry, the Ministry of International Relations, and the Central Planning Office into the all-encompassing Economy Ministry. The ministry is supposed to be responsible for drafting economic policy for international trade and specialized sectors like agriculture and energy, and to promote economic growth in general. It is also supposed to develop long-term planning.
Plans vs. reality
The division of powers was clear on paper. But it did not take into account institutional desires to protect power bases, the personalities and backgrounds of the ministers who would run the agencies and political reality.
Today, the NBP is clear in its role. And the Treasury Ministry is handling privatization issues. The RCSS is a thorn in the side of other ministries, but it is largely ineffectual because it does not have real power and its leader, Jerzy Kropiwnicki, is seen as an economic lightweight.
The Finance Ministry, previously the real power in all things economic, has retained its power and is the office that runs both the short-term and long-term economic shows. In addition to its historical role as the economic management base, the ministry has also had a large role because its minister, Leszek Balcerowicz, is seen as one of the shining economic lights in Poland's transformation to a market economy and is leader of the junior government coalition partner, the Freedom Union (UW).
With such a powerful leader, the Finance Ministry has pushed the Economy Ministry, run by Solidarity Election Action (AWS) member Janusz Steinhoff, into a secondary role. This has led to confusion over the ministry's role and among many observers uncertainty as to what exactly it does.
"I remember trying for a time to follow the new formation," Blazyca said. "It is a bit odd now, though it was exciting at the time. I don't find the Economy Ministry terribly important."
Few, in fact, find the ministry important. While most analysts do not advocate a return to an umbrella organization, they agree the Economy Ministry could be eradicated given how much its importance has diminished.
Still, many believe it would be better to create a clear purpose for the ministry rather than trying to create super ministries.
Governments always amalgamate agencies and Poland certainly could, but blaming the Economy Ministry for the country's economic problems is a "strange line of attack," said Nomura Securities analyst Michael Gomulka. "Of course I could see an argument for folding the Economy and Finance ministries into one," he said, "but right now that could be carte blanche for a kind of destruction of what they tried to achieve over the last two years."
Let the Economy Ministry be swallowed up, but don't expect the government's problems to go away, Gomulka said.
"Even if the ministry is not running smoothly, it has not prevented successful monetary policy here," he added. He warned a move to close the ministry should be taken with caution.
Old thinking
Not that anyone is actively thinking of eliminating the Economy Ministry. But as time goes by it becomes less relevant to the government's attempts to manage the economy. An economist at a major financial institution, who did not wish to be named, said the government simply doesn't need the ministry because it does not fill a needed role. The ministry's information is dated and the institution itself is "useless and misguided," the economist said.
The problem, Gronicki said, is that members of the old party system still fill the ranks there.
"Foreign trade, agriculture, industry, manufacturing, those guys are gathered in the Economy Ministry," he said. "They don't have a clue about what's going on."
The latest study released by the group offered "useless data" and "no analysis," Gronicki said.
Even the ministry's Eysymontt admitted that he did not know what was in the 1999 budget recommendations his agency prepared. Not, in many ways, that it would matter. As the budget made its way through the Sejm in recent weeks, it was the Finance Ministry that called the shots.
That is not such a problem, economists said, so long as there is a ministry that is shepherding a process. But when there is not a clear-cut leader for a task, the lack of a clear mandate at the Economy Ministry can be problematic.
According to the economist, the privatization of both the steel and coal industries stalled largely because ministries could not split their responsibilities. Poland, he added, cannot afford to waste time developing these areas.
Of course coal and steel need reform, Blazyca said, but the agriculture sector especially cries out for attention. Poland could use "some sensible micro-planning," he said, and not much has come from the Economy Ministry.
Lack of progress in these areas is not completely the ministry's fault, many concede. One of the biggest impediments comes from the RCSS, where the vocal Kropiwnicki opposes reform measures put forward by the central bank and the Finance Ministry, the economist said. The center is a worthless institution that houses not only the same old party members, but additional inept staff, and it is worse than before, the economist added.
The problem is the center is often dead wrong, the economist said. Right now it stands alone in its criticisms of Finance Minister Leszek Balcerowicz and the central bank.
"They have accused the tight fiscal policy of causing undue social hardship in some areas, and they have said the high interest rates slowed growth," the economist said. "They said the strong zloty slows exports, which they attribute to the current account deficit."
Such a view is in direct opposition to those put forward by the Organization for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF), which both agree Poland is on the right track to fiscal stability. A tightened budget, strong zloty and a cautious lowering of interest rates are what the country needs, the economist said.
If the Finance Ministry and the central bank followed the suggestions of the think tank, "it would be a sure sign there would be a crisis two years later," the economist warned, adding that there is no room for this type of political infighting.
But even if wrong in its outlook, some believe the RCSS does have a role to play. "There should be opposition," Gronicki said. "But not of the kind seen in this government - orthodox Keynesian and orthodox monetarist." Polemics lead to petty squabbles with no solutions, he added.
And there is plenty of room for controversy. The ministers of the Economy and Treasury ministries and the Center for Strategic Studies are all members of Solidarity Election Action (AWS). Balcerowicz is a member of the Freedom Union (UW). And Economy Minister Janusz Steinhoff has close ties to the Prime Minister Jerzy Buzek and the leader of AWS, Marian Krzaklewski. "That does have some impact," said Marek Matraszek, director of the Warsaw office of CEC Government Relations.
Usually, the impact is to further bolster the position of Balcerowicz, said Vlad Sadell, a senior economist at Daiwa Europe. "If the political resistance is saying we've got to do something otherwise our country is vulnerable to things like a Russian crisis, it only gives Balcerowicz the ammunition to enforce his reforms," he said.
But inter-ministry arguments aren't necessarily bickering, rather honest disagreements that eventually lead to compromise, some said.
"There is a cooperation between ministries," the Economy Ministry's Eysymontt said. "There would be no agreements without it. Politics is the art of compromise."
Defending the ministry
The Economy Ministry is not without achievements during its two years in existence, however. Matraszek said the Economy Ministry plays a pivotal role in moving the economy along.
For example, he said, the ministry has completed a proposal to overhaul the coal industry, now steeped in debt. Under the reform, as many as 25 mines will close and about 115,000 workers will be slashed from the 240,000-employee labor force. The ministry is also tackling issues related to the defense industry, he added. Finally, the ministry also relinquished some of its "arbitrary power" by agreeing with Finance Ministry recommendations to cut back the number of licenses required to start up or operate a business to six from 36.
"Broadly, it seems the right approach," Matraszek said about the current structure. "The ministry seems to be doing what it is supposed to do."
And Pawel Badzio, a spokesman for the Economy Ministry, said the ministry is not a conglomeration of hapless bureaucrats. "We have not postponed anything. We have met all EU obligations.
"The most important thing for Poland is changes that make privatization faster, and create new jobs, conditions and developments," he said. The Economy Ministry has been drafting a four-year plan that will guide the country through accession agreements, a proposal that Eysymontt sees as passing easily through the Sejm.
"Our focus is three things: to close the economic gap between the EU and Poland, full membership (in the EU), and active membership in NATO," Badzio said. "These four years will decide EU membership," he added.
The Economy Ministry's governmental counterparts are also against any moves to eliminate the agency.
Rafal Zagorny, undersecretary of state in the Finance Ministry, said he finds the thought of restructuring those agencies ridiculous. "Creating a super ministry? I cannot even think of the consequences because I cannot imagine such a situation," he said.
And no new method of reshuffling within the government is likely to work, Zagorny said. "Even if we finish privatization, some contracts are long term and some the treasury has a 30% to 40% stake in, though those will be sold later. Somebody needs to take care of that," he said.
