Central Europe Review Call forpolicy proposals...
Vol 3, No 19
28 May 2001
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Warsaw's new trams
Warsaw's new-look trams
Moving with the Times
The Polish economy is changing fast. Can politicians follow?
Andrew Cave

A journalist writing for Lloyds of London recently described Poland as "promising, exciting and frustrating in equal measure."[1] He was writing about the Polish insurance market but might well have been describing Poland as a whole. After ten years of spectacular economic growth and after five years of relatively stable government, Poland's political leaders are staring electoral defeat in the face, whilst at the same time standing on the precipice of a serious economic downturn.

In response to this, the government's liberal and centre-right partners are frantically trying to paddle in the opposite direction to the impending defeat. As early as last year the governing coalition between Solidarity Electoral Action (AWS) and the liberal Freedom Union (UW) collapsed, followed this year by an exodus of centre-right politicians and activists from the AWS electoral grouping. Last week these dissidents took a further step away from the political establishment by proposing some sensible and necessary amendments to liberalise Poland's Labour Code.

These amendments are sure to be defeated and the recent machinations of liberal and centre-right politicians smack of political opportunism, at least this is what their political opponents say. They are partly right. The amendments will most likely fall, defeated by an alliance of post-Communists and right-wingers, the later of which still cling to the coat tails of the Solidarity movement. But the actions of the centre-right demonstrate, however faintly, that the political landscape is changing and the anticipated rejection of amendments to the Labour Code suggests that this change cannot come soon enough.

A restructured economy requires enlightened political leadership

The time has come for Poland's politicians to acknowledge the socio-economic transformation unleashed by their own reforms. In the past ten years the ownership structure of the Polish economy has been turned on its head. Small and medium sized enterprises (SMEs), companies employing fewer than 250 people, now account for 99.8 per cent of all companies in Poland, employing 7.1 million people.[2]

Unfortunately, successive Polish governments have failed to reflect the economic and social shifts occurring since 1989. The private sector may account for 71 per cent of Poland's industrial output but the dinosaurs of heavy industry continue to prowl the corridors of power, surviving on the lifelines of public ownership and preferential treatment.

Whilst the public sector eats away at national savings the government has increasingly hit the private sector with higher labour costs, taxes and other charges. Earlier amendments to the Labour Code and Personal Income Tax Law, together with a shorter working week have made the Polish workforce the most costly in Europe. This has compounded the problem of growing unemployment, which recently rose to 15.9 per cent, its highest level since 1995. The Organisation for Economic Co-operation and Development (OECD) has called for sweeping labour market reforms but as recent events have shown, this will be a difficult pill for Poland's politicians to swallow.

Poland has moved beyond the period of "exceptional politics," the time immediately after the fall of Communism in which radical economic reforms were possible, and into an environment where both sides of the political divide display a deep-seated antipathy towards the private sector. The latest amendments to the Labour Code would lower overtime pay and make employment contracts more flexible. But for these to be accepted there will first have to be a painful re-orientation of political thinking and Poland's reluctant politicians will have to embrace the realities of the new economy.

Dynamism—Poland's untapped resource

At first sight this should not be such a difficult transition for Poland's politicians to make. The success of economic regeneration is still in the air. A raw dynamism pulses through Poland and finds its expression in Warsaw, now Europe's second largest building site after Berlin. From its skyline to its ageing trams and trolley buses, Warsaw is undergoing a facelift befitting a city tipped to become the hub of Central and Eastern Europe.

Last month, with the city's officials and politicians in attendance, Warsaw's new-look trams rolled out onto the high
NCart at work
NCart at work
streets. The new trams are a product of Polish design, developed on the outskirts of Warsaw by NCart, a firm of industrial designers who are winning contracts throughout Europe.

The progress made by NCart and its founders closely reflects the political and economic changes experienced in Poland over the last twenty years. Its founder, Tomek Rudkiewicz recently had two of his designs included in an exhibition of the hundred most celebrated Polish designs of the Twentieth Century. One of these, a spot-lamp, was realised in 1981, the year of Solidarity and the introduction of Marshal Law. Whilst simple in design it revolutionised the way in which Polish apartments were lit and continued to sell for the next ten years. Even today Tomek's lamps light many Polish homes.

In 1986, Tomek, like many other Poles, left Poland and relocated his family in Finland. When Tomek returned he brought with him Western know-how and expertise, which he now applies in the field of Polish industrial design. In 1981 it was almost impossible to find good designs in Poland but now Tomek's firm has contracts with west European companies like Volvo and Alstom. "Working in my own language and in my own country has made sense, there is a lot of idealism here but I can't say that we have made a tremendous success in economic terms."

Tomek's firm began by employing four people, it now has fifteen employees and recently moved location to expand its operations. Despite its success the firm struggles with the same obstacles faced by all SMEs in Poland. "Employing people is very expensive because of the taxes we have to pay." Polish employers must now pay USD 160 in payroll taxes for every USD 200 paid to an employee,[3] but they are also battling against a growing tide of bureaucracy. "We are a small scale company but our book keeper has to give details of our accounts every month. This doesn't exist in countries like Finland or Britain."

The way out of Poland's growing problem of unemployment lies with the hundreds of thousands of businesses like NCart, but job creation is being stifled by a combination of apathy and ignorance at government level. With an unemployment rate of 15.9 per cent (as of March 2001) it should be easy to find employees but this is only possible if the unemployed are re-skilled.

"It is simply impossible to get a professional designer in Poland so we have to train anyone we employ, which is very expensive." In addition to running his
When is a tram not a tram?
When is a tram not a tram?
business Tomek trains students in industrial design and acts as a moderator at the Warsaw Fine Art Academy. He has even considered lecturing in an effort to raise standards but there are limits to what can be done without support. "I don't feel that the government offers any support for my business. I would like to see a change, but I am not in a position to participate in this movement and anyway I am not a politician." Yet this is a step that some entrepreneurs and business leaders have seriously considered, even entertaining the idea of setting up their own political party.

New way of thinking preferable to new political party

The idea of establishing a new political party to articulate the needs of the downtrodden business community is hardly original in a country where political parties come and go in quick succession. Such a venture would polarise existing divisions but it does demonstrate that this section of society is prepared to assert itself and articulate its views.

Private employers have demonstrated their commitment to civil society and their interest in improving standards of education, health, local government services and the other component parts of a modern social system. For Henryka Bochniarz, former minister for Economics, now president of the Polish Confederation of Private Employers (PKPP), the message is clear, this "sense of social responsibility deserves to be appreciated and accepted. A public debate is needed on how to include this group in the social and political dialogue."[4]

For this to have any effect there will need to be more than a little tinkering around the edges of existing labour laws, rather some major systemic changes will have to be made. Take for example the Confederation of Polish Employers (KPP). This body represents employers in the social dialogue but is dominated by unreformed state sector companies whose interests are juxtaposed to those of SMEs. Even politicians who express an interest in helping SMEs fail to recognise the contradiction of private employers being represented by the state sector and smart at the idea of giving a greater voice to SMEs. So why, despite growing economic importance and a commitment to society are leaders of private business still shunned by Poland's politicians?

To some extent the answer lies with the patrons of the two main political forces in Polish politics, trade unions. Both Poland's political Left (SLD) and Right (AWS) are wedded to the support of trade unions, which in turn represent the floundering sectors of heavy industry. Both sides of the political divide are content to buy off trade unions by watering down or simply shelving economic reforms and restructuring packages. In AWS this attitude is all the more ingrained since its party machinery was until recently bound closely into the organisational structure of the Solidarity Trade Union. Not surprisingly, it views proposed changes to the Labour Code as nothing less than the "total enslavement of employees."[5]

Things are not much different on the other side of the political divide where the same changes have been referred to as a "return to the 19th Century." SLD has already declared that it will slow down the process of economic reform and was instrumental in voting down reforms to Poland's tax system, which would have lowered taxes and brought the whole system into line with new economic realities.

As Marek Matraszek, columnist for the Warsaw Business Journal, pointed out; "Anyone who believes the SLD would liberalise and lower personal and corporation taxation... need their head examined."[6] Tomek holds a similar view. "I don't expect SLD to come to government with programmes that are good for a business such as mine."

Do Poland's politicians have the courage?

The reluctance of politicians to distance themselves from trade unions is not the only impediment to economic reform. There is a widely held belief that the free market and employers are responsible for poverty and most other evils affecting society. This stems from the lack of a clearly identifiable wealth creating class in Polish history. Generating wealth through enterprise has always been regarded with a degree of suspicion and was largely the occupation of Poland's vast Jewish community until the Second World War, after which Communism dealt a serious blow to the whole concept of private enterprise.

Instead of working to overcome these negative sentiments, politicians, eagerly accompanied by trade
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unions and sections of the Church, have milked them for their political capital. This was possible for as long as Poland's economy remained buoyant, but in recent months the economy has developed a rather serious leak and it is only a matter of time before these same politicians are dragged beneath the waves by the dead weight of their rhetoric and trade union affiliations.

Poland's politicians are slowly realising that their fates are tied to the performance of the national economy. AWS is finding that this is all the more acute when in government. Its gradual fragmentation demonstrates that some politicians are prepared to move to the centre ground and to the realities of Poland's new economy. These politicians are not alone and despite its good track record of party unity, SLD will almost certainly follow a similar pattern of disintegration, particularly if it is forced into a governing coalition with the anti-reform Polish Peasants Party (PSL).

Economic transition has produced tensions in Polish politics, which will sooner or later lead to a realignment of political interests. The fortunes of Poland's new "centrist" grouping in the forthcoming elections will be watched closely before others are prepared to shake off the heavy hand of trade unionism and ditch lingering prejudices about private enterprise.

Until then, amendments to the Labour Code will either fall or be watered down and Poland's business leaders will remain frustrated. But Tomek believes that he can see the light at the end of the tunnel. "I am really very optimistic. I see movements and trends. When you travel through the country you see that everything is changing, everyone is building and people are very dynamic and active. The system should reflect this."

Andrew Cave, 28 May 2001

Moving on:


1. Norskov Anders, Lloyd's Press Ltd, 24/10/00
2. Polish News Bulletin Company, 30/05/00
3. Economist Intelligence Unit, 03/04/01
4. Bochniarz Henryka, Polish News Bulletin Company, 29/08/00.
5. Tomaszewski Ewa, Rzeczpospolita, 12-13/05/01
6. Matraszek Marek, Warsaw Business Journal, 22/11/99



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