The 22% myth

Have you heard? The European Union could be bad for the country's economic health - or more precisely, could make the current bad situation even worse.

Becoming a member of the 15-nation Union could drive the country's already astronomical unemployment rate up to 22%, as well as trigger a new round of bankruptcies, repeating similar scenarios in Ireland and Spain after they joined in 1973 and 1986, respectively. This is the latest news - or speculation - to surface concerning the country's accession, scheduled for May 2004.

Officials, however, have shot back that such a prospective doomsday scenario - as if it could get any worse than it is now - could be avoided if only domestic companies increased their competitiveness. Prime Minister Leszek Miller, speaking at a recent meeting of the Foreign Investors Chamber of Industry and Commerce, showed he is still under the same grand illusion that EU funds earmarked for domestic entrepreneurs and businessmen will be the ultimate panacea. Józef Oleksy, chairman of the Sejm's European commission, chimed in that a major problem is that entrepreneurs lack knowledge of EU regulations that will affect their businesses, though he didn't go so far as to propose how the government would try to enlighten them over the next year. His other comment that firms would be able to close gaps with their EU peers under the transition delays negotiated for individual economic sectors was little consolation for concerned businessmen.

Indeed, life in the EU will not be easy for Polish companies. But the situation with respect to unemployment and bankruptcies is the culmination of problems in the country's domestic agenda - not its impending Union membership. It is a direct result of the failure of government policies and programmes to alleviate these economic ills. Thus, the squawking about Union membership possibly increasing the country's unemployment rate and number of bankruptcies is groundless, and for several reasons.

Joining the Union will in no way push the country's current 18.8% unemployment rate to 22%. In fact, unemployment could skyrocket to even 25% if the country stayed out of the EU, according to one economist. There have been gradual signs of a rebound with many analysts forecasting steady economic recovery and a stabilisation, if not a slight fall, in unemployment at 17%-18% within the next two years. The driving forces behind the recovery will mainly be foreign demand and domestic consumption. As a result, domestic companies are now more optimistic about their outlooks. Furthermore, the open borders of some EU countries will allow young people aged 18-25 - a demographic group with one of the highest levels of unemployment at 40% - to seek easily available service-sector jobs in western European countries.

With regards to the fallacy that Union membership could increase bankruptcies, businesses here have already been through the rough and tumble economy of the past three years, and the weakest have succumbed and gone bankrupt.

In addition, western European multinationals are already present here, including the largest and leading companies in each sector, so that the country will not see an onslaught of new firms rushing over its borders to set up offices and drive local businessmen out of business. Moreover, the nation's current low wealth level and dismal GDP per capita are not attractive assets for those EU firms looking to expand to the East.

Meanwhile, domestic companies are already competing quite nicely abroad, with exports rising 20% in the fourth quarter of 2002 - a very impressive figure considering the EU's general economic slump, especially in Germany, the country's largest trading partner.

Without a doubt, the labour market needs to be further liberalised to give domestic firms a competitive advantage, specifically with reductions in the high non-wage labour costs that employers must pay. Labour code changes must be proposed since previous ones have not cut deeply enough, a move backed by commercial chambers in order to foster competition as more firms could use excess funds to hire more workers - thus alleviating unemployment - or pay better employees top salaries. Jerzy Hausner, the minister of economy and labour, has openly criticised the government's previous attempts to enact labour reforms as failures.

Yet while commercial firms clamour for these changes, any efforts to reduce unemployment and increase competition among companies will not be had in the current political climate since the SLD government no longer has a majority in parliament to pass such programmes. For now, there is no scope for a short-term remedy. The only solution is a deep fundamental reform of labour practices akin to the shock therapy initiated by Leszek Balcerowicz in the early 1990s.

But until that happens, no one should point any fingers at the EU.