It is beneficial to satisfy the euro area requirements even if we do not enter it

Bronisław Komorowski, President of the Republic of Poland (on the right PAP)

The discussion titled: “Poland’s competitiveness and economic growth” has launched a cycle of debates on opportunities and threats stemming from Poland’s entering the euro area, organized by the President of the Republic of Poland. The participants , who include officials responsible for the Polish economy in the former governments, have  commonly indicated the same areas requiring urgent reforms: education, industrial policy, transport infrastructure, small enterprises sector, system of justice, cooperation between the state and the market. Below there are the most interesting opinions presented at the meeting.

Jerzy Pruski, advisor to the President of the Republic of Poland:

Numerous analyses show that the present sources for economic growth are drying up. Also new factors emerge, which may have an adverse effect in the future. Therefore, the Polish economy has to focus on innovation based growth, which we need. The President many times highlighted the necessity of  enhancing innovativeness of the Polish economy. The challenges that we face concern increasing the security of public finances, the labour market reform and the search for new sources for economic growth.

Joining the euro area has to be preceded with the preparation of the economy, reforms increasing the competitiveness of the Polish economy.

President Bronisław Komorowski’s guests have been asked to answer the following three questions:

How to release new growth factors in order for the GDP to reach an annual growth of 4% in  the years 2014-2025?

Which competitive advantages have to be developed by using the economic ecosystem in Europe?

Which reforms are necessary to make the economy flexible prior to entering the euro area?

Professor Jerzy Hausner, the governments of Prime Minister Leszek Miller and Marek Belka:

In April, we will deliver a report on competitiveness of the Polish economy; today, I am outlining its main assumptions.

– We need to compete in order to continue development;

– We need to know with whom we want to compete to be successful;

– We need to know how to cooperate with some to be able to compete with others.

– Industrial policy is important, so we need to recognize our advantages in order to be capable of transforming this potential into competitive standing.

For this reason, we need to put emphasis on an efficient use of own resources coupled with skilful acquisition of external resources.

Today, our economy is competitive thanks to the following:

– inflow of foreign direct investments;

– bulk transfer of innovation;

– efficient labour at low remuneration.

What hinders an increase in competitiveness?

– progressive deindustrialisation (by one fourth within 20 years);

– low level of national savings;

– suspended inflow of investments;

– high trade deficit ;

– low quality of education;

– bottlenecks: transport, power industry;

– rigidity  of the public sector compared to the dynamic private sector.

Conclusions: We should help enterprises grow. We should forget about stadiums and aqua parks for a decade– all public funds should be dedicated to strengthening innovativeness.

What we need:

New industrial policy:

Changing the approach in the public sector:

Mirosław Gronicki, the government of Prime Minister Marek Belka:

To be competitive, Poland needs to generate more capital. With a low level of national savings, we need foreign capital for the implementation  of various initiatives. We are among the countries with the highest external debt– Polish external debt amounts to 70% of GDP. We spend 0.5% of GDP on innovations, while the level of savings stands at 17%. Can we think of developing innovativeness at all?

Today, Korea is considered to be  the most dynamic and innovative country, but only a few years ago it didn’t even aspire to this position. How has the country achieved it? Through high national savings, investments in new projects, education and exports.

Can we do it in Poland? Of course, we can. Why can’t we for example support the development of technology parks?

Stanisław Kluza, the government of Prime Minister Jarosław Kaczyński:

Are we ready to consume all the benefits from entering the eurozone if we consider the barriers that we still need to overcome? We may find examples of countries that entered the euro area too early or unprepared and now paying their price.

It is more likely that Poland will record GDP growth  of 3% than 4%. This is due to demographic processes, which are reflected in the labour market. We have already consumed the benefits from the demographic boom.

My assessment of the proposal to restrict co-financing by local governments is negative. It may only exacerbate negative processes in the economy.

Andrzej Olechowski, the government of Prime Minister Jan Olszewski:

Four decisions are crucial for increasing competitiveness:

Adopting the euro because it will improve the reliability of the country and will attract capital.

Reducing interest rates because it will help to boost investment

Reducing transactional costs and increasing the profitability of exports

We have to remove investment barriers, which is not a new concept, but still the government may be perceived as thinking only through the perspective of increasing budget revenues. Let me illustrate it with the example of searching for shale gas: the government is focusing on controlling the gas extraction, licences, future budget revenues, while it is a great opportunity to reduce energy prices, the significance of which for the industry cannot be underestimated.

Another essential element: facilitating the growth of small enterprises. Small enterprises which are not developing do not contribute much to economy. In fact, small enterprises often do not want to grow, because they do not want to get trapped in the maize of regulations.

And the final, radical and indispensable reform: changes in the educational system and in higher education.

Jerzy Osiatyński, the government of Prime Minister Hanna Suchocka:

How can we measure the competitiveness of the economy? One of the applied criteria is whether the economy is capable of  maintaining  its foreign trade balance without weakening the exchange rate.

Another criterion is what share in the exports of sold goods  wholly originates in Polish companies. The exports of Polish goods –manufactured according to the Polish technological thought –also means exporting  such technological thought, engineering, Polish design, etc.

Therefore, we need a new industrial, economic policy. The issue  is to attempt at diagnosing restrictions for growth correctly. We need to pay attention to bottlenecks such as, for example, the system of justice.

We are worried about foreign investments, while we should worry about investment conditions for all businesses.

The final remark: who will invest when the return on savings is higher than the return on investment?

Jacek Piechota, the governments of Leszek Miller and Marek Belka:

I have the impression that the rule “economy first” is no longer active. In terms of economic promotion –we  are unable to make our minds up about who is responsible for it or who is responsible for the support of foreign investments. Small and medium enterprises do not benefit from foreign capital because they have no such possibility. At the lowest, municipality levels we miss structures offering assistance to small companies.

Janusz Steinhoff, the government of Prime Minister Jerzy Buzek:

We need a second stage of reforms. I am critical of the recent changes in the tax system. We often encounter changes which are simply detrimental.  The broader system of justice is the biggest failure of the transformation process in Poland. This topic should be in public debate.

Invited guests:

Wiesław Kaczmarek, the governments of Włodzimierz Cimoszewicz and Leszek Miller:

We could take the risk of creating leaders, because there are several companies that satisfy such conditions, for example PESA. However, this requires coordinate actions of all the interested parties. Only one Polish company is truly global– KGHM.  So what has the government done to it? It has burdened the company with an extra tax on extractions.

I also suggest that the Ministry of Agriculture should be taken into account in this debate on our competitiveness in the world , because the food industry constitutes one of our immense opportunities. Our difficulty is that we have many ideas, but every interested party is trying to act independently. We need coordination.

Tomasz Mironczuk, President of Polski Bank Spółdzielczości:

We have a manufacturing base, which we are now destroying. This base also includes cooperatives. In Poland cooperative banks constitute 8% of the banking sector. I call  for noticing this sector, because it is discriminated against, while it promptly reacts to the needs of microenterprises and farmers. This sector may form the basis for the growth of local capital base.

Alicja Adamczak, President of the Patent Office of the Republic of Poland:

The discussion about the growth of innovativeness needs to deal with the patent policy, though it does not do so. It is necessary to debate on the role of patent protection. Proper understanding of those issues is necessary for the development of an innovative country and, for example, public-private partnerships. We do not have a court for intellectual property and we miss early education concerning property rights.

Janusz Piechociński, Deputy Prime Minister, Minister of Economy:

Politics should serve to people and the economy. Therefore, it is crucial for politics to be creative. We cannot discuss growth and competitiveness independently of place and time. And this is the time for challenges in the European economy. In spite of fighting we should think about competing and cooperating.

Summary:

Bronisław Komorowski, President of the Republic of Poland:

This debate was important for me in terms of developing a strategy for joining the euro area and I hope that this will launch a discussion leading to the adoption of  such strategy  – so that we could think about entering the euro area not on the level of fantasy and willingness, but possibility to do so. The strategy about  how to get prepared  and function in the euro area is going to be discussed for several years, for more than a year or two. I believe this discussion is for five years. Before any decisions are taken in this regard,  we need to be one hundred per cent  sure that entering the euro area is safe and profitable.

It takes a great skill to join the euro area in such a manner which guarantees economic development for the country. Any doubts from sceptics may be answered in specific actions, and not by casting spells on reality. We need to convince people that the euro area provides opportunities for development and that it will be profitable. It is worth to present such solutions from which they will benefit.

The process of satisfying the four conditions from Maastricht is in itself beneficial for the Polish economy. They are worth to be met even if we are not to enter the euro area. This is a real task, sometimes inconvenient, but essential.

The meeting was held on 24 January 2013 as part of the Public Debate Forum in the Presidential Palace.

Share this post

TOP