We are adept at assembling and tightening screws, but by doing so, Poland falls into the trap of low technology and medium income. We need to change our approach to the economy, and then consistently implement a new plan - says Professor Jerzy Hausner, the chief author of the report on the competitiveness of the Polish economy.
Obserwator Finansowy: What is the competitive position of Poland?
Professor Jerzy Hausner: If you allow me to use the terminology of team sports, I will say we are somewhere between the top of the world’s economic third league and the bottom of the second. The report raises a number of questions: can we avoid falling into the low-technology and middle-income trap? Do we want to climb up to the top of the second league with the ambition of jumping to the first at some point?
Answers to such questions are rather obvious. What are the three most pressing challenges that we face?
Three major questions relate to our place within the European Union, relations with non-EU economies and the way out of the trap of low technological advancement of Polish manufacturing. However, the major question refers to our place in the European Union. What should be the relationship between the German and the Polish economy? For us, the point of reference and an economic engine – I do not want to use the word “domination” – is Germany, with its very strong position in Europe and globally. Are we able to become Germany’s ally in its attempts at changing the manner of functioning of the EU, including the euro zone?
We could assume such responsibility, but this means joining the euro area. We can also tell the Germans: Do what you want, and we will do what we want. If our attitude is to let the euro zone change, wait and see if we consider joining it, we will not participate in the debate about the future shape of Europe. We will thus accept the role of an object of actions, rather than a subject-partner. Being a partner is a commitment. It is difficult, but it provides opportunities. We therefore need to create a new Polish strategy of European integration.
Would simply a better integration with the EU not be enough?
The model of Polish exports that depend primarily on the EU, especially Germany, is not safe. The economic slowdown in the EU immediately reduced our economic growth rate. It was the reaction of Polish entrepreneurs that saved our growth from collapsing. Some of them have managed to enter markets outside of Europe. However, only large and independent companies, with a wide offer of modern investment goods, can afford to enter global markets of Asia, South America and Africa.
There are no such companies in Poland. We do not have our Siemens and it is rather unlikely such a company will materialize in the near future. In order to cope outside of Europe, Polish companies need to enter into alliances and partnerships. Diplomatic support is also of vital importance. The challenge is to help a large number of medium and large domestic companies enter new international markets.
The third question is what to do to escape from the trap of low technology, imitative innovation and low-paid labour productivity growth. All the above can be actually considered as one immense challenge: we must decide what to do when we have to compete, there is no turning back from competition, when protectionist isolation is impossible and staying put means regressing.
The report points out that the Polish economy is growing more slowly. It is increasingly difficult to progress. According to the authors of the report, in the coming years, Polish economic policy should be focused on one basic goal: increasing our competitiveness. How much time do we have?
It is never too early or too late for a structural change. In our report, we analyze Poland’s competitive position, our place in the global economy. The diagnosis suggests that we should begin to adjust. How many years have been talking about the need to create appropriate conditions for innovative economy in Poland? At least a few years.
It is high time we successfully implemented the suggested solutions. Another factor that should accelerate change is the fact that an increasing number of medium-sized domestic enterprises are trying to become international players. Internationalisation means being better, more efficient and innovative.
You propose a new structural policy, referred to as a new industrial policy. What does it consist in?
Simply put, it must be favourable to entrepreneurship and pro-competitive. Removing barriers to business activity is not enough. We must help companies grow and develop, enhance their ability to compete. One of the goals consists in increasing exports of products with much higher added value than ever before. This should be a structural change that we need and are able to bring about, and later reinforce. Just as in the case of many other elements of economic policy, the involvement of the government or public administration alone is not enough.
The companies themselves have the greatest role to play in this process. First, however, we need to consider which sectors of the Polish economy are able to export high value-added products. Then, we need to see which of them export a lot, and which export little, and what obstacles hinder the process. Then, an appropriate policy should be developed and implemented in relation to five or six key sectors in order to increase the value-added of their exports. This must be carried out as a joint program of the public administration, enterprises and research institutions representing each sector.
Why is this important?
The shift from low value-added exports towards high value-added exports means the creation of new jobs, an increased efficiency of production and higher income levels. Thus, we will be able to continue to invest and become even more competitive.
How do you change a policy without falling into the trap of economic interventionism?
I do not understand why the term interventionism is to be deleted from the dictionary of economic policy. Any action of the state is a form of public intervention. Historically, state interventionism was to protect domestic companies against international competition. Today, our aim is to boost their ability to compete.
The structural policy that we refer to is more than just a matter of a simple relationship between the state and entrepreneurs: it also means changes to the labour market, education, business environment and tax administration. It is something more, as it means finding an answer to the question of whether we wish to reduce economic risk and ensure social security, or promote our creativity, initiative and innovation. It means deciding whether we want to expose ourselves to competition.
In our report, we show the correlation between the level of technological advancement of the Polish economy and the share of wages in added value. Countries with low technological advancement, such as Poland today, can only afford low remuneration for labour productivity growth. Consequently, domestic consumption will not become a driving force for the economy. Domestic consumption will not stimulate economic growth.
What should countries such as Poland do in that case?
They must export their products. And what do they export if they are not technologically advanced? Well, the same products as Poland does, that is automotive industry products and household appliances. This specialization does not, however, stem from our technical innovativeness. We are very good at assembling parts and tightening screws. Thus, however, we fall into the trap of low technological advancement and medium income.
If we want to improve our competitive position, we need to reimburse in a more appropriate manner labour productivity and thus ensure a higher quality of human capital. This requires more innovative solutions. The intervention we refer to means showing the relationship between the various elements of the economy. And exerting influence on these relationships.
Do you have any ideas for meeting the challenges that we are facing?
Ours is a strategic and diagnostic report. We analyze our position and our potential in order to recognize our ability to compete and propose specific measures that would boost our competitiveness.
We presented ten recommendations, areas in which specific actions are needed. If political elites agree with this, recognize threats, challenges and opportunities, they can take advantage of our recommendations. The report is a starting point from which to go forward in order to achieve the desired result and induce the necessary structural and systemic changes. Real changes, however, depend on the establishment of a genuine partnership between public authorities and entrepreneurs.
It is no coincidence that a lot of attention is devoted to social dialogue in the report. We have indicated its important role, but also its current weakness. We wish to encourage new forms of dialogue, and show what they could look like.
Can you indicate three strategic recommendations?
The most important issue is to understand that we should continually improve our business environment. We often hear such declarations in Poland, but they do not mean much in reality. It is not a matter of a “one-stop shop”, which became the official mantra and a label for subsequent deregulation policies. We need a systematic approach to policy that will enhance entrepreneurship in Poland. We have the one-stop shop, but at the same time we took a huge step backwards, which set us back almost a decade in terms of the binding interpretation of the tax law. Fiscal Administration is allowed to destroy with impunity an entrepreneur – unfortunately, filmmakers seems more interested in the issue than the government. It was already settled once, in 2004, after an internal dispute between the then Minister of Finance and the Minister of Economy.
Today, however, the services of Minister Rostowski publicly declare: you can get our interpretation of the tax law for 25,000 zloty, but it is not binding. How ironic! Entrepreneurship is of key importance for our competitiveness. The modern state has to constantly think about ways in which to boost the international competitiveness of domestic companies.
Very importantly, the modern state must also be supportive, sometimes even provide specific services, not only in terms of infrastructure. Suppose that the timber industry is vital to our economy. It turns out that the main problem of the sector is access to capital. In that case, institutions of the modern state must decide what actions to take: should a system of guarantees be introduced? Or maybe further public investment could drive the growth of this sector? The problem may also consist in excessively strict technical requirements for road or rail transport. Only a detailed analysis will allow the identification of ways in which to support the sector and increase its share in the global value chain.
You suggest the creation of a council for the competitiveness of the economy. Why do we need another organization?
This is not an institution, but a form of dialogue and cooperation. This model is popular Germany, as they strive to introduce strategic structural changes into their energy sector; this great breakthrough is to boost their competitiveness over the next ten years. In the last decade, they approached in the same manner the labour market in the context of Agenda 2010, and now benefit from its results.
We want to create a new and vital form of dialogue on competitiveness, which is Poland’s priority at the moment. We are not talking about the establishment of another institution, but about a method that is supposed to bring results, or start a process of change. It is to contribute to the next milestone. Several such steps in a very good direction were made at the beginning of the transition process; now it is time for the next one, and certainly not the last.
Is it not an incantation? The government is involved in current politics and looks no further than 12 months ahead. Do you really believe it will be willing to consider structural changes?
I do, provided that the Prime Minister and the government adopt the same goal as Chancellor Gerhard Schröder and, two decades before him, Margaret Thatcher did. At the turn of the century, Germany was the sick man of Europe, the first country involved in the excessive deficit procedure. It was then decided that the country’s economy was not sufficiently competitive. German football was in the same situation, by the way. Today, Germany is once again at the forefront of economic growth and boasts a strong national football team. The most important thing is to realize the situation in time and change it. We can either take this opportunity or not. Germans succeeded in this respect.
Will we succeed?
We certainly won’t if we don’t try. I once heard at a conference Adam Krzemiński saying that just as Germany had its Schröder’s program, Poland had Hausner’s plan. Such was the rank of that project. I thanked him, as this comparison was flattering for me, but I also added that Germany managed to implement it, while we failed. Nevertheless, I believe that our politicians are able to introduce the necessary changes. I believe it is a good sign that the president of my country states that the competitiveness of the economy and the demographic crisis are the two most important national challenges, that we have to face them and that he wishes to encourage such changes.
The report is ready – what’s next?
Today (Tuesday, 18 June), the president has invited economists in order to discuss the report. In a few days, the document will be presented at the innovation congress of the Polish Chamber of Commerce. PCC will consult it with representatives of businesses. After several months of debate, we shall prepare an annex to the report. We want to propose a number of specific actions and present them to the President and Polish businesses. This is where our role of experts and citizens ends.
What are you going to devote your next report to?
I think that this autumn I will try to organize a team of experts to prepare a report on the condition of the state.
Interview by Aleksandra Fandrejewska
How to make headway in the world league? Report on the competitiveness of the economy – written by a team of experts: Tomasz Geodecki, PhD (Cracow University of Economics), Professor Jerzy Hausner, PhD – project manager (Cracow University of Economics), Aleksandra Majchrowska, PhD (University of Lodz), Professor Krzysztof Marczewski, PhD (Warsaw School of Economics, Market, Consumption and Business Cycle Research Institute), Grzegorz Tchorek, PhD (Warsaw University), Jacek Tomkiewicz, PhD (Leon Kozminski Academy), Marcin Piątkowski, PhD (Leon Kozminski Academy), Professor Marzenna Weresa, PhD (Warsaw School of Economics in Warsaw).