My article in the Polish edition of "Forbes"

"Polski nowy Złoty Wiek: z europejskich peryferii do centrum"



Andrzej Wajda wyreżyserował kolejny, świetny film. Jego „Wałęsa. Człowiek z Nadziei” jest zasłużenie polskim kandydatem do Oskara. Tło filmu pokazuje jednak, jak siermiężna była polska rzeczywistość w tamtych czasach. Jakże wiele się od tego czasu zmieniło

The full text available here

Financial Times reviews the "Poland's New Golden Age" paper

Financial Times has reviewed the paper on its BeyondBrics blog. This is a fairly nice review. An excerpt below:


"Most people looking at a global economy buffeted by five years of crises and turmoil would be loath to call this a “Golden Age”. But that is just what Poland is experiencing, according to a new World Bank paper. Marcin Piatkowski, a World Bank economist, makes the fairly convincing argument that central Europe’s largest economy is enjoying its greatest period of stability since the country appeared on the map of European history more than a thousand years ago."

Poland's new generation is the most competitive generation ever

As I argue in the World Bank paper, economic models, which spit out long-term growth projections, are deeply flawed as they are blind towards soft, but nonetheless critically important factors such as culture, values or the determination to get ahead and catch up with the West.

Specifically, growth models compare oranges to apples when they do not reflect the fundamental difference in Poland between the old, post-Soviet generation and the new, European generation in terms of work ethos, command of English, personal integrity, entrepreneurship, educational aspirations, social trust, openness, internet use or civic engagement.

The old, 50+ generation has throughout their lives acquired skills, which allowed them to survive under communism, but have proven difficult to thrive in capitalism. Kafkaesque incentives, lack of innovation, acceptance of mediocre quality, lack of focus on customer service and satisfaction, and a guarantee of employment promoted a skill set and mentality that are not the same as those needed today in modern European capitalism. The work ethos also suffered, following in the footsteps of earlier generations.

In turn, the young generation of Poles today is probably the most competitive Polish generation ever. Anecdotal and formal evidence (Social Diagnosis 2011, 2013, Boni 2011) suggests that the new generation is more materially motivated, more assertive, and more focused on success than the old generation. It is also much more traveled, cosmopolitan, urban, open-minded and European. It is also significantly better educated: only 13 percent of the generation aged 55-64 has tertiary education relative to 39 percent for those aged 25-34, one of the largest differences among the OECD countries (OECD 2013). The new generation is also widely perceived to be among the most productive and hard working in Europe, in reversal of old stereotypes.

Interview on the "Poland's New Golden Age" paper by Obserwator Finansowy

The interview entitled "The best time for Poland after 500 years" (in Polish) has been published by the National Bank of Poland's "Obserwator Finansowy". The English version is here

My new World Bank's paper on "Poland's New Golden Age: Shifting from Europe's Periphery to Its Center" - comments welcome!

I have just published a new paper in the World Bank Policy Research Working Paper Series, WPS 6639 on "Poland's New Golden Age: Shifting from Europe's Periphery to Its Center". The paper's abstract is below.

To my knowledge, the paper is the first attempt to:

1. Draw worldwide attention to the remarkable economic performance of Poland since 1989, becoming Europe's No. 1 in terms of GDP growth. The country has also done very well relative to 40 countries at a similar level of development, including all Asian Tigers and other emerging markets, coming in in the top 5 between 1995 and 2012.
2. Argue that in mere 20 years Poland seems to have offset almost 500 years of economic decline relative to Western Europe, moving on its way from the continent's periphery to its center;

3. Assert that the rise of Poland (and the rest of Central Europe) will re-shape Europe's politics, affect the functioning of the EU and -- through the EU -- affect the global economy.

Comments to the paper are much welcome! 

They will help me to write a book based on the paper.

ABSTRACT

The objective of the paper is (i) to help fill the gap in knowledge on the long-term economic history of Poland; (ii) to provide a new perspective to the debate on the economic future of Poland, with a special focus on its historically unprecedented post-transition growth experience; and (iii) to analyze critically long-term growth projections for Poland. The paper argues that (i) Poland has just had probably the best 20 years in its economic history, growing the fastest among all European economies and one of the fastest worldwide; (ii) by 2013, it Poland achieved levels of income, quality of life, and well-being likely never experienced before, including relative to Western Europe, a natural benchmark; and (iii) Poland is well placed to continue converging with the Western European levels of income, permanently moving from the economic periphery of Europe, where it languished for centuries, to the European economic center. The twenty-first century thus promises to become Poland's new Golden Age. The paper calls for further research on the lessons from Poland's successful growth model for other countries in the region and beyond as well as on the long-term implications of the rise of Poland for the future of Europe

My paper on PKO BP's anti-cyclical role during the global crisis

The World Bank has just published its first edition of the "Global Financial Development Report".

It includes my box on PKO BP's very positive role during the 2008-2011 global crisis (Chapter 4) based on a background paper.

In a nutshell, I argue the following:

The case of Poland’s PKO BP suggests that domestically owned banks can play a useful counter-cyclical role during crises by supporting lending to the economy, becoming de facto “creditors of last resort”. This is largely because they are less subject to exogenous shocks, are more often funded in the domestic markets, and are more inclined to react to changing credit market conditions based on domestic fundamentals alone. They are also insulated from exogenous decisions of foreign parent banks affecting lending policies of their domestic subsidiaries.


State ownership has further enhanced PKO BP’s ability to withstand the crisis by imposing on the bank a conservative lending and funding culture, enhancing the bank’s ability to attract deposits during the crisis thanks to the implicit State guarantee, and by participating in the crucial capital increase.

PKO BP story also highlights the benefits of Poland’s diversified bank ownership structure, with foreign banks playing a very positive role in supporting financial deepening (World Bank, 2009), especially during good times, and domestically owned and state-controlled banks taking the lead on lending during times of external turbulence.

However, the case of PKO BP suggests that for the state-controlled banks to be successful, they need to be commercially-oriented, open to free market competition, and focused on “utility banking”. They also need to be transparent, professionally managed, ideally by managers chosen through a meritocratic selection process, and subject to hard budget constraints.

All of these keys conditions can be at least partly achieved by taking state banks public and listing them on a stock exchange. This not only forces these banks to adopt international accounting and reporting standards, but—thanks to a watchful eye of domestic and international shareholders—also helps impose market discipline, ensure compliance with best global practices of corporate governance, strengthen commercial orientation and sustain high quality of lending, including by mitigating political pressures. Without such market pressures, the key conditions for success are not always easy for state-owned banks to adhere to. A well embedded culture of transparency, accountability and strong business ethics is also useful, although policy recommendations on how to achieve it are not straightforward.

Doing Business 2013: Poland in the Global Top 10

On December 19, I gave a presentation on the World Bank's "Doing Business 2013: Poland in the Global Top 10" as part of the TIGER Seminar Series.

I explained how Poland became the global No. 1 in improving the business environment last year. Quite an achievement! I am proud to have played a role in it.

Click for more on the Doing Business ranking and Poland's performance.

My article in "Gazeta Wyborcza" on Doing Business

Gazeta Wyborcza, a leading Polish daily newspaper, published an article co-authored by me on how to further improve Polish ranking in the World Bank's Doing Business report.

This comes after Poland was classified in the No. 1 place among the fastest reformers globally in Doing Business 2013, catapulting Poland into a 55th place overall.

I bet that Poland will soon enter the top 50, and will end up in the top 30 within the next couple of years. I will be happy to have contributed to this achievement.

Workshop on technology transfer in Tel Aviv

I have just come back from an EU-Israel workshop on technology transfer, which took place in Tel Aviv on November 25-26 (starting at 8.30am on Sunday!).

I spoke on the Polish experience with using 10 billion euro of the EU and Polish public funds to support enterprise innovation in Poland, based on a World Bank report, which I co-authored and which will be published in December.

Following the workshop, one of the participants, Prof. Shlomo Maital from MIT and Technion, wrote a very nice note on his blog on "Poland's Economy Excels", which seems to have been at least partly inspired by my presentation. Delighted to see some positive PR for Poland!

Shame on the Economist! It is so wrong on Poland

The current edition of the Economist features an article on "Dream on?", which is unprofessional, misleading and wrong on basic facts about Poland.

First, it says that "In Poland, for example, credit to the private sector grew by an extraordinary 36.6% in 2008, contributing to a current-account deficit of almost 9% of GDP." This is manipulation, because it talks about growth from a level of private credit that it much lower than anywhere else among peers and thus much less worrisome (Poland's private credit to GDP ratio is one of the lowest in the whole EU, close to Romania only; it is much different to worry about fast credit growth in an economy with credit much exceeding 100% of GDP, like in most of the EU, than in Poland, with 60% of GDP or so).

Second, thee current account deficit in 2008 was only 6.6% of GDP, according to the IMF, not almost 9% of GDP (where did they get the data from???).

Third, it argues that "In recent months, the FDI and portfolio capital Poland required to fill this [current account gap] gap has flowed in the wrong direction. That leaves the country uncomfortably "susceptible" to the euro crisis, says Raffaella Tenconi of Bank of America Merrill Lynch, if it prompts a further withdrawal of cross-border lending", which is another manipulation since the data are taken out of context and are for only of couple of months of the year (exactly when dividends are paid to foreign owners of Polish companies, which biases the data, rather than for the usual whole year). For the whole year, the IMF projects a current account deficit of 4.4% of GDP only, largely financed by FDI and EU inflows. I don't know who Raffaella Tenconi from BoFA is, but she doesn't really know what she is talking about (or she has a short position on the zloty and wants to finance her early retirement....). As to her claim that Poland is susceptible to the euro crisis, while true in general (which country in Europe isn't?), is wrong in detail as Poland is one of the least, not the most susceptible economies in the EU to the euro zone further troubles. If fact, as I have argued before, the euro zone crisis is a blessing for Poland, since, inter alia, it keeps the zloty exchange rate so low, that Poland is Europe's China in terms of price competitiviness. The banking sector, which Tenconi implicitly argues would be the major channel of contagion, is well capitalized, profitable, and largely funded by domestic deposits making withdrawals of foreign financing less relevant (the two largest banks, PKO BP and PEKAO SA, have loan-to-deposit ratios below 100, meaning that all their loans are financed by domestic deposits, not foreign borrowing)

Finally, it is a shame that the Economist continues to classify Poland as an emerging market, putting it in the same basket as China, Russia ot Turkey. Poland, with GDP per capita PPP of US$20,000, three times the level of China, is not an emerging market anymore. The World Bank and the OECD now officially classify Poland as a developed economy, not an emerging market. According to the IMF, Poland's GDP per capita will exceed that of Portugal and Greece in the next couple of years - perhaps we should call these countries "emerging" (even if for now they are rather "submerging" to be exact) too? Time for the Economist to grow up.

Poland richer than Portugal!

The new Golden Age of Poland and New Europe is coming fast...

According to the new data from the IMF's World Economic Outlook (Spring 2012), GDP per capita PPP in Poland will exceed that of Portugal by 2015 (given the downside risks to growth in Portugal, probably even sooner), which will likely be the first time in Poland's more than 1000 year old history when Poles will become richer than the Portuguese.

By 2017, Poles will be almost as rich as Greeks (although the IMF is probably too optimistic on Greece here..) and Saudi Arabs (except that Poland has no oil... with shale gas, if the predicted bonanza proves to be real, we will be richer than Saudi sheiks even sooner).

I was right then back in 2009, at the bottom of the crisis, when I published a paper on "The Coming Golden Age of New Europe". I now hope to finish the book on it soon too. Stay tuned!

My quote in the Economist's article on Poland

This week's edition of the Economist features an insightful article on "Poland's progress. Tusk takes two".

I am quoted as saying that "growth this year could exceed 2.5%, reckons Marcin Piatkowski, a World Bank economist in Warsaw. He says Poland’s potential for productivity gains could make it the “Asian tiger of Europe”.

My earlier quotes are here:

• Petri-dish economies: Poland: Few woes in Warsaw
  Apr 28th 2011, 10:55 from print edition
• Poland's economy: Not like the neighbours
  Apr 23rd 2009, 11:48 from print edition
  says Marcin Piatkowski, a former IMF ...(24)
• Europe.view: Red turns grey and gloomy
  Jul 3rd 2008, 7:29 from web-only article
  
  

Conference on innovation and competitiveness, March 29

Last Thursday, March 29, I participated in a conference on „Badania i innowacje w restrukturyzacji przedsiębiorstw i zwiększeniu ich konkurencyjności” organized by the Polish Foundation for Management Promotion

I presented two World Bank reports, which I have co-authored, centered around employment, skills and innovation challenges facing the Polish economy.

There was a suprisingly large media feedback to what I said. Some of them are here below (in Polish):

http://kariera.pb.pl/2587402,59940,polsce-grozi-zapasc-na-rynku-pracy
http://www.forbes.pl/artykuly/sekcje/wydarzenia/po-2020-roku-w-polsce-zabraknie-rak-do-pracy,25628,1
http://praca.gazetaprawna.pl/artykuly/606906,po_2020_roku_polsce_grozi_brak_rak_do_pracy.html
http://m.wyborcza.biz/biznes/1,106501,11447314,Najwazniejsze_dla_Polski__wzrost_zatrudnienia_i_innowacje.html
http://www.bankier.pl/wiadomosc/Po-2020-roku-Polsce-grozi-zapasc-na-rynku-pracy-2511358.html
http://warszawa.biznespolska.pl/przeglad/214308/Ekspert:-po-2020-roku-Polsce-grozi-zapa%C5%9B%C4%87-na-rynku-pracy-.html
http://biznes.interia.pl/praca/news/ekspert-po-2020-roku-polsce-grozi-zapasc-na-rynku-pracy,1778780,4204
http://www.wnp.pl/wiadomosci/bez-innowacyjnosci-polska-gospodarka-zatrzyma-sie-w-rozwoju,166407.html

Misleading information in the media on EU tax harmonization (in Polish)

I have just read an article in the Polish Gazeta Wyborcza on "Takie same stawki podatków w Unii? Zbyteczne" (The same tax rates in the EU? Not needed), which provides a sweet example of media misinformation.

First, the title of the article is not congruent with its content: one of the surveyed economists (in fact, Dr Ozog is not an economist, but a tax lawyer) is in favor of harmonizing tax bases within the EU and introducing a range of tax rates for CIT, ie a minimum and a maximum tax rate allowed. This is as close to tax harmonization as it can possibly get, short of having the same CIT rate for everyone.

Second, the way the article is written makes it really hard to understand Ozog's views: it first says that she is against one CIT rate for everyone, but then at the end adds that "it could be useful to think about introducing ranges", which goes against the main message coming from the text. Readers are left believing that there is something wrong with harmonizing taxes.

Third and finally, the article only asks for opinion two selected economists, without trying to talk to someone, who has strong arguments in favor of tax harmonization. Biased selection biases the results.

On the whole, the title of the article should have read something like "Tax Harmonization in Europe? A qualified yes for harmonizing bases and minimum tax rates", which would have fit the content much better. Otherwise, it is a great article!:-)

Workshop in Seville on "Investigating Industrial and Innovation policies for Growth"

On November 2-3, 2011, I participated in an international workshop on "Investigating Industrial and Innovation policies for Growth: Contrasting experts views" organized by the European Commision's IPTS in Seville, Spain.

I spoke on "The 10 billion euro question': how to most effectively support innovation in Poland". The slides are here

OECD's paper on structural reforms to raise growth

I have just come across a new and interesting paper by the OECD on "Raising Potential Growth
After the Crisis. A Quantitative Assessment of the Potential Gains from Various Structural Reforms in the OECD Area and Beyond", which projects how much OECD countries could benefit in terms of higher GDP levels after introducing product and labor market reforms.

The conclusion is that "The overall potential GDP gain for the average OECD country from undertaking the full range of reforms considered here might come close to 10% at a 10-year horizon, indicating the presence of ample room for structural reforms to offset the permanent GDP losses from the recent crisis".

This is a useful exercise, although results for Poland are quite doubtful: it is projected to benefit from product and labor market reforms to the tune of almost 18 percent of GDP within the next ten years largely through reforming the supposedly very rigid product market regulations.

But when you look closer, Poland's low position in the product market regulation (in fact, the last one in the ranking) is largely due to to a slightly larger share of state ownership in the economy than elsewhere. The underlying assumption is that state ownership by definition has to always be worse/less efficient than private ownership and by simply privatizing these companies Poland would develop much faster. I am not so sure: private ownership in the long run is indeed more efficient than state ownership, but in a short run and under additional assumptions, partial state ownership (as is the case in Poland for most state-owned firms) may be equally efficient.

OECD's projections for the impact of PMR reforms on Poland's GDP are therefore overestimated. The PMR index on its own has also be taken with a grain of salt, as most international rankings for that matter.

IMF's annual assessment of the Polish economy

The IMF has just published its annual report on the Polish economy (the so-called Article IV). It is a useful read, replete with the usual high-quality analysis, but somewhat marred by an arcane language, which makes it hard to read for anyone outside the narrow economists’ circles.

(A digression: as IMF desk economist for Moldova, I was writing staff reports myself – I needed to quickly learn how to use the same undecipherable language to relay the right message without disturbing the audience and the markets. To my great surprise, chiseling the text was taking more time for everyone than the underlying economic analysis!).

There are plenty of things I would broadly agree with:

- maintaining fiscal discipline (in my view Poland should aim for a balanced central budget by 2016, reduce publid debt to closer to 40 percent of GDP and establish a Fiscal Council to increase credibility and transparency of public finances),
- increasing labor participation (more than 1.5 million Poles more should be working when compared with Western Europe, there is another million working in low-productivity farming, which should be moved to industry and services, there is a substantial scope for increasing immigration, especially the high-skilled type)
- streamlining bureaucracy (there is nevery enough of it)
- stimulating further business climate reforms (some of it is happening and Poland is likely to improve its position in this year's Doing Business rankings)
- and continuing privatization (although it is somewhat irritating to read the banalities about the permanent advantage of private vs. public ownership. This is simply not always true; vide the fact that many Polish partially state-owned firms, PKO BP, KGHM, Orlen, Lotos etc, have recently performed better/equally well as their private sector competitors and—above purely private returns—have also provided substantial social returns by maintaining operations and profits in Poland and—as in the case of PKO BP—increasing lending were needed. The usefulness of maintaining some sort of public control over the most important enterprises is even higher during uncertain times: for instance, in a scenario of further worsening of the euro zone crisis, we might need to use PKO BP again to support lending and/or buy out foreign banks, if needed) The key is not ownership per se, but the existence of competitive pressures and commercial orientation).

However, I disagree with IMF’s view that foreign exchange reserves are too low and that they should be increased. This is for three reasons:

- First, FX reserves may be lower than the total value of short-term debt, but a large part of this debt is short-term only by name, as it includes inter-company financing from foreign banks and companies for their Polish subsidiaries. This type of funding has proven to be extremely stable in the past. Even during 2008-2009, at the bottom of the first wave of the global crisis, foreign banks, for instance, have actually increased, not decreased their financing for Polish subsidiaries. This is likely to be the case in the future too, implying that the FX reserves do not have to inordinately high.

- Second, Poland maintains access to the $30 billion Flexible Credit Line from the IMF (for which it is paying about $50 million dollars a year in commitment fees), which could be used at any time to bolster reserves. Maintaining the same $30 billion on NBP’s balance sheet would cost us $1.2 billion a year in opportunity costs (see below). So, it is better to further increase the FCL than to build up reserves.

- Third, and above all, FX reserves are one of the most inefficient ways of investing public money: while NBP invests $100 billion worth of dollars and Euros in US and euro bonds yielding 1-2% a year, at the same tiem the Ministry of Finance borrows the same dollars and Euros from the global financial markets at 6% a year. As a result, the poor Poles are subsidizing rich Americans and Western Europeans to the tune of some $4 billion a year! Does that make any sense?

In an ideal world, NBP should not have to accumulate any FX reserves and rely instead on the ECB and/or IMF-like insurance policies guaranteeing payment in case of a crisis. The accumulated reserves should be used to pay back the burgeoning public debt (reducing the total outstanding public debt by one third). Poland will come close to this ideal situation when it enters the euro zone around 2020: as part of the euro zone, there will be no need any more to maintain FX reserves (except for our contribution to ECB and small reserves for technical reasons). One more reason to enter the euro zone at some opportune moment and at a competitive exchange rate.

The New World Bank EU10 Economic Report

The World Bank has just published its useful and comprehensive "EU10 Regular Economic Report", April 2011, which covers the recent economic developments in the EU-10 area. Worth reading, not only because I have contributed to it, including on the EU 2020 focus note:-)

The new growth model - the Warsaw Consensus!

The DC-based Center for European Policy Analysis has just published my paper on the "Post-Crisis Prospects and a New Growth Model for the EU-10", where I analyze the growth prospects of the EU-10 countries (New Europe), argue that the global crisis has undermined the credibility of the current growth model, and offer a set of policy recommendations for a new growth agenda for the region - the Warsaw Consensus.

This is an important paper for me, particularly as I introduce the concept of the Warsaw Consensus as the strategic growth model for Central Europe.

All comments are warmly welcome!

Supervision of SKOKs/credit unions in Poland

In February we launched a World Bank report on "Credit Unions in Poland: Diagnostic and Proposals on Regulation and Supervision", which I have co-authored.

The press release and the full report in English are here