Wednesday, April 24, 2024
Poland

Poland’s economic miracle still going strong after three decades of exceptional growth

Warsaw skyline and Vistula river against moody sunset, aerial landscape (Source: iStock – dzika_mrowka)

Those factors that were once Poland’s weakness, and which led to its collapse at the end of the 18th century – the Poles’ strong individualism, their attachment to individual freedoms, and their weak state structures – are contributing in modern Europe to the rapid and stable development of its economy.

 

Olivier Bault

 

Beyond the Ukrainian war, it is Poland’s economic rise from the end of the Cold War to COVID that is changing its place in the EU power balance. Poland is second only to China as having the largest percentage change in GDP growth among the world’s largest economies.

This post was published on X (formerly Twitter) on September 5 by Professor Michael Tanchum, an American expert in international affairs, geopolitics, and economic policy affiliated with Harvard University. He illustrated his message with a world map showing data from the International Monetary Fund (IMF) about the economic growth of the world’s 25 largest economies between 1990 and 2020. China recorded the highest growth during that period (+3583%), followed by Poland, with +857%.

Next are four Asian countries: India (+703%), Indonesia (+665%), Saudi Arabia (+496%), and South Korea (+465%). The second European country in this ranking of the world’s 25 largest economies, in terms of economic growth between 1990 and 2020, is Switzerland, which comes far behind Poland with a growth of 190%. Russia ranks just behind Switzerland, its GDP having increased 187% over that period.

Poland now has the 21st largest economy in the world in terms of nominal GDP calculated in U.S. dollars, and is gradually catching up with Switzerland. But if IMF forecasts come true, it should first overtake the Turkish economy in the very near future.

Poland’s economic development is also quite clear if we trace the change in the average purchasing power of a resident of this country against the European Union’s average, even if we only look at the last decade.

In 2011, Poland’s GDP per capita calculated in purchasing power parity – or purchasing power standards (PPS) – was 65% of the average of today’s EU-27 (i.e. without Britain, which left the EU in 2020). By 2022, Poland’s PPS per capita was 80% of the EU-27 average. During the past decade, Poland overtook Greece in 2015 and Portugal in 2020 in purchasing power standard (PPS) terms, i.e. in real wealth. In a few years it should also overtake Spain, whose GDP per capita calculated at purchasing power parity is now 86% of the EU-27 average (down from 93% in 2011).

GDP per capita (PPS) as percentage of EU-27 average

Source: Eurostat

According to IMF data, Poland’s GDP per capita when calculated in terms of purchasing power parity was still only 51.6% of the EU average in 2004, the year Poland joined the European Union, and will reach 86% in 2028.

 

Poland’s economic rise has not gone unnoticed

Poland’s economic strength has been drawing increased attention abroad of late, as evidenced by articles published in the European press: “Poland will be wealthier than Britain by 2030 – it’s time we took notice” (The Telegraph, May 7, 2023); “Poland’s formidable rise won’t be tempered by election hostility – Surging GDP per capita has made it Europe’s one real economic success” (The Telegraph, October 14, 2023); “How Poland is vying to steal Germany’s crown as the industrial heartland of Europe – As the G7 powerhouse loses steam, its eastern neighbour is going from strength to strength” (The Telegraph, October 9, 2023); “Poland has changed beyond recognition – and so has its place in Europe’s pecking order” (The Guardian, April 25, 2023); “Press: Poland among the fastest growing countries”(Deutsche Welle, May 19, 2023); “Europe’s true growth star – Over the last 30 years, Poland’s economy has caught up without anyone noticing. In terms of prosperity, our neighbor is getting ever closer to Germany” (Die Welt, October 19, 2023); “Economic boom in Poland: Will the German economy be overtaken by 2040?” (Telepolis, July 18, 2023); “Poland transformed by thirty years of economic miracle”(Les Échos, 13.10.2023); “Poland’s economic miracle: How it has become one of Europe’s export locomotives’” (elEconomista.es, June 30, 2023); “EU, Poland challenges German leadership” (Euractiv Italia, March 13, 2023, about Poland’s growing role as a regional energy hub) – and so on, and so on.

The modern face of Poland’s economy

As noted by the author of the above-mentioned article from the British newspaper The Telegraph which was published last October with the title “How Poland is vying to steal Germany’s crown as the industrial heartland of Europe,” one of the features of Poland’s economic transformation is the growing share of industry in its GDP, in contrast to what is happening in most European countries, which are suffering from a process of deindustrialization.

Germany’s manufacturing industry shrunk from 20.3pc of economic output to 18.5pc in the decade to 2022. Poland, meanwhile, saw its factory output grow from 16.7pc of GDP to 17.7pc over the same period,” Matt Oliver writes in The Telegraph.

In fact, during the period discussed Poland was the only country in the European Union where the share of industry in the economy, when calculated both in relation to GDP and in terms of total value added, increased. If we look at the share of industry in the total value added created by the Polish economy, it was 27.6% in 2022. In 2016, for example, it was 25.9%, which shows that the upward trend has continued in recent years. Poland’s share in the total value of industrial goods sold in the entire EU is currently 6%, which places Polish industry in fifth place, ahead of the Netherlands (4%) and after Germany (26%), Italy (19%), France (11%), and Spain (8%).

Source: Eurostat

 

The geopolitical consequences of decades of sustained economic growth

To understand how 30 years of uninterrupted growth – with the exception of the first year of Covid, 2020, when Poland in fact had one of the smallest recessions in the entire EU regardless – can change the balance of power in Europe in the long run, it is worth comparing the evolution of GDP and per capita income expressed in U.S. dollars for Poland with that of its two big neighbors, against which it has had to defend itself for centuries: Russia and Germany.

In 1990, when Poland regained full independence from Moscow, getting rid of its communist dictatorship and opening its economy to the free market, Poland’s GDP was $65.98 billion. Last year, Poland’s GDP reached $688.18 billion. During the same period, Russia’s GDP increased from $516.81 billion to $2,240.42 billion, and Germany’s GDP increased from $1,171.67 to $4,072.19 billion. This means that, while a little over three decades ago Poland’s economy expressed in USD was equivalent to 12.77% of Russia’s and 5.63% of Germany’s, last year the proportions were 30.72% and 16.90%, respectively.

And in terms of per capita income in U.S. dollars, the average Pole, with an income of $1,731, was twice as poor as the average Russian and well over ten times poorer than the average German in 1990. Last year, by contrast, with an income of $18,321, the average Pole was one-fifth wealthier than the average Russian and less than three times poorer than the average German.

The evolution of Poland’s nominal GDP and per capita income from 1990 to 2022 (in USD)

Source: Macrotrends

In recent years, under the Law and Justice (PiS) government, economic development has been accompanied by an increase in Poland’s military weight vis-à-vis its neighbors, an increase that underwent a sharp acceleration after Russia’s attack on Ukraine. It is worth noting that Poland is the only country on NATO’s eastern flank that borders both Ukraine and Russia. But regardless of current circumstances, isn’t the modernization of the Polish armed forces and the increase in their potential vis-à-vis Russia’s a natural consequence of this change in the balance of economic power?

Accelerated transformation of the Polish armed forces – “We have begun to build something unprecedented in any European country.”

Those rating agencies, international organizations, and economic journalists who, over the past decade, have highlighted Poland’s remarkable, long-lasting economic dynamism – even during the great financial crisis of the late 2000s, Poland was the only EU country to record economic growth – often explain this phenomenon in terms of certain strengths of Polish society.

Namely, they highlight that Poles are well-educated (they perform well in international Programme for International Student Assessment [PISA] comparisons), hard-working (they are among those who work the most hours in the entire EU), entrepreneurial, and have a positive attitude toward wealth. The welfare system is likewise less generous in Poland than in Western Europe, prompting households to make greater efforts, with state finances being at the same time less burdened by social welfare costs.

Source: Eurostat

 

The benefit of not having gone through decades of non-European mass immigration

On top of this, the social system and the state’s law enforcement apparatus are not burdened by mass immigration, as is the case in Western European countries. In France, for example, it has become common to talk of the “tiers-mondisation de la France,” i.e. the gradual transformation of France into a Third World country, which an observer who has traveled frequently between France and Poland over the past 30 years – such as the author of this article – cannot but notice with sadness.

President Macron himself used the phrase “decivilization” earlier this year to describe the adverse evolution France is experiencing. At that time, he talked about the brutalization of society (in immigrant enclaves and where native French people come in contact with immigrant populations, though he did not himself mention this) and the increasingly worsening security situation for everyday citizens.

According to a survey published by the French interior ministry on December 14, a quarter of French women now prefer to avoid leaving their homes without being accompanied because they are afraid of what may happen to them, and 18% of French people, both men and women, say they do not feel safe in their district or village (a figure that climbs to 25% in the greater Paris area).

As the famous American political scientist and economist Francis Fukuyama argued in his book Trust: The Social Virtues and the Creation of Prosperity, adherence to shared social norms inspires mutual trust and accelerates economic development. The opposite situation, which is being observed today in many Western European countries as a result of the loss of cultural cohesion in these societies, impedes this development.

Former French counterintelligence chief Pierre Brochand said it plainly in April of this year: if France does not drastically reduce its immigration levels, it will eventually turn into a Third World country. A similar situation exists in Germany, where high levels of immigration are now officially cited by the federal police as the main reason for the rapid increase in crime.

In Poland in the mid-2000s, on the other hand, after the post-communist left suffered a stunning electoral defeat as a result of numerous high-profile corruption scandals, the post-communist mafias (fueled by, among others, former officers of the communist political police, the SB) were largely dismantled, and the level of security for citizens and companies has since improved considerably (as in most Central European countries that were once part of the Eastern Bloc).

An economic strength made perfect in weakness

Another of Poland’s strengths is its tradition of freedom and individualism, which is derived from the former nobles’ Republic of the Two Nations (better known in English as the Polish-Lithuanian Commonwealth) and, paradoxically, its tradition of a weak state, which likewise dates back to what is now referred to in Poland as the First Republic.

The combination of this tradition with those coping skills that were acquired most especially during the era of the communist dictatorship came in handy during the Covid lockdowns, when Polish entrepreneurs were very creative in dealing with restrictions, outdoing themselves with ideas to continue doing business and survive that difficult time – although it has to be said Poland’s Covid lockdowns were not as strict as in countries such as the UK, France, Italy, or Spain. But this was also due to the fact that Mateusz Morawiecki’s government was unable to assemble a parliamentary majority for its most liberty-killing proposals, as well as the fact of the government’s actions being invalidated on many occasions by hostile courts.

Thanks to this, Poland had one of the shallowest recessions in the entire EU in 2020, at -2.8%. Sweden, which had no lockdown policy at all, experienced a similar recession (-2.9%). Meanwhile, the decline in production in the Eurozone was as high as -6.8% in 2020.

In a sense, those factors that were once Poland’s weakness, and which led to its collapse at the end of the 18th century – the Poles’ strong individualism, their attachment to individual freedoms, and their weak state structures – are contributing in modern Europe to the rapid and stable development of its economy, thanks in part to smart decisions made by some of the many governments that Polish parliamentary democracy has elected since the fall of communism, and in part despite the bad policies of those governments.

Poland and China’s economic history have much in common

An interesting comparison between Poland and China was made by Polish World Bank economist Marcin Piątkowski, author of the book Europe’s Growth Champion – Insights from the Economic Rise of Poland, in an article titled “China and Poland: The Unexpected Parallels in Economic Development,” which was published in 2021.

Starting, as this article does, from the fact that China and Poland are the last three decades’ world champion and vice-champion in economic growth, respectively, Piątkowski shows that, contrary to appearances, the two countries’ economic histories have much in common.

Both countries, due to overly powerful elites that hindered any change, were underdeveloped for centuries in comparison to Western European countries, which eventually led to them being dominated by foreign states. In both countries, communism, while having an overall negative impact, helped to break up the former elites and create a more egalitarian and inclusive society. In both countries, the market economy was then introduced – gradually from 1978, in the case of China, and in full from 1989-90 in the case of Poland – which created a situation in which, in relation to general poverty, everyone had the opportunity to improve his own standard of living (henceforth without being hindered by the former elites). In both countries, the memory of their former position on the international stage has encouraged rulers and citizens alike to make bold reforms in order to restore their status – as a major power, in China’s case, or as that of an important European nation and a regional power in Central and Eastern Europe in Poland’s case.

It should also be said, even if Piątkowski does not mention this in the article discussed above, that a propensity for hard work and a knack for trade are common characteristics among both Poles and Chinese people. Today, however, for both Poland and China, demographics may prove to be the biggest threat to the further dynamic development of their economies and the subsequent strengthening of their geopolitical positions.