Three steps for economic growth
Krzysztof Rybiński is chief economist at BPH PBK.
Picture the following: In a countryside, within a 90-minute drive of Warsaw, young urban professionals arrive at their summer homes on a Saturday morning to relax after a 60-hour workweek. About an hour after their arrival, locals start knocking at their doors, offering to mow the lawn or to deliver local cuisine specialties. After an enjoyable weekend in the country, the town boys are ready to jump in their Boss or YSL suits to begin another 60-hour workweek.
Imagine how fast GDP would advance in both the countryside and in towns amid the rapidly growing service sector. There would also be a rapid income catching-up effect, as we would work about 10 hours a week more than our German friends. Let me call this an "entrepreneurial model."
Now picture something else. After a 60-hour workweek, the town boys drive to their summer homes for the weekend and would be more than happy to have someone mow their lawns for them. There are a lot of jobless people around, quite a few of them sitting in front of the local GS store, sipping Polish Grand Cru or enjoying a beer. If they were to ask the locals to do some work for a decent price (for example, mowing the lawn for zł. 50 an hour), the typical response they could expect to receive would be Kozakiewicz's famous obscene gesture of defiance during the 1980 Olympics in Moscow, although the exact response would depend on the local tradition (a middle finger, a knocking on the forehead or a loud laugh).
It turns out that many of those sitting in front of the local store regularly receive disability pensions. Indeed, if they are unable to work for some health reasons, it may have something to do with the shapes of their livers. Let me call this a "Polish business model."
Of course, every reader of this article would prefer the entrepreneurial model. Unfortunately, the country's economy is stuck in the second one, with almost 5% of its GDP spent on disability allowances compared with the OECD average of around 2%. A recent OECD report also showed that there are almost 130 disabled persons per 1,000 inhabitants here, while the organization's average is 60.
So is there something wrong with us? Are we a handicapped and crippled nation? Of course we aren't. We are a normal European society. What's wrong here is the system of granting disability pensions to persons who are perfectly able but unwilling to work. Indeed, of the 2.5 million people receiving disability pensions, probably more than a million are perfectly fit to work, though they enjoy lifetime unemployment benefits. No European country feels rich enough to offer lifetime unemployment benefits to more than a million people. And we do.
Consequently, it should come as no surprise to find that the employment rate here is 10 percentage points lower than the European Union average and 20 percentage points below the U.S. level. And with so few people working we should not expect fast growth and convergence to EU income levels. Actually, we should not expect any convergence at all as long as we remain a Polish business model as described above.
EU accession offers us an unprecedented chance to change economic models and to move towards the one I started with - the entrepreneurial model. It can be achieved in three simple steps.
The first step is forming a coalition of the willing where all political parties and trade unions make a joint decision to shut up and let the government do its job to change the economic model to the one we all like. It would probably require a different government and a different prime minister, such as labor and economy minister Jerzy Hausner for example, who is very skillful in negotiating with various social partners.
The second step is that the government would drop all ideas that assume a widening of the fiscal deficit in coming years, since these remedies are not what a skillful doctor would order for a sick economy, but are recipes concocted by a quack. We do not need any national reform programs or any other sexy titles that, apart from nice front-page news stories, have next to nothing sensible to offer. The doctor with vast international experience and excellent credentials - the World Bank - has already made an economic health check and come up with a set of correct measures. It is called "Poland: Toward a Fiscal Framework for Growth." The government does not need to spend long hours branding one plan with the elements of the other; all it needs is to implement the World Bank's recommendations page by page.
The third step is sharply reduced social expenditures and a broadened tax base that would allow for a major reduction and simplification of taxes, which would be accompanied by a rapid acceleration of privatization and the removal of red tape. The result: a sharp revival of private investments. On top of that, the EU-financed infrastructure projects would also help to speed up growth and generate new jobs. More jobs and a lot less "fake disability pensioners" would allow for a gradual reduction of social security costs, and the country would embark on a fast growth path resembling Ireland's performance in the 1990s.
A careful reader may immediately ask what makes EU accession so special since it appears that all three steps could have been taken at any time. True, but it is EU accession that offers government a once in a lifetime opportunity to make this appeal to the nation's citizens: "There are billions of euros on the table. We need to make every possible effort to grab them and put them to the best productive use for the benefit of Poles, for the benefit of our children." And if the appeal is made by a government that is not involved in numerous corruption scandals, by a government that starts a fiscal belt-tightening policy from the top by giving up most of the perks it now enjoys, then it could win popular support.
Three simple steps would do the trick. But unfortunately the reality will surely be very different. Instead of sound reforms, we are likely to enjoy big titles and propaganda. Instead of sharp fiscal deficit reduction, we will probably see politicians robbing the central bank. Consequently, instead of the Irish footpath, we are likely to follow Greece, which needed more than 10 years to figure out that real convergence does not happen by itself, that homework needs to be done.
It is sad to say, but when our children and grandchildren learn about our economic history, their teachers will always spend one class on the fiscal and structural policy mistakes that we made in 2004, mistakes that put the brakes on our growth prospects in the following years and possibly decades. And our children will never forgive us for rejecting sound policies ordered by a respected doctor and resorting to quack tinctures.
