Poland in 2016: At a Crossroads between Economic Liberalization and Renationalization

Poland at a crossroads as a newly elected government takes the reins.

Poland at a crossroads as a newly elected government takes the reins.

Poland in 2016: At a Crossroads between Economic Liberalization and Renationalization

by Amanda B. Sieradzki, MBA ’16, EMI Fellow

Poland finds itself at a crossroads in 2016 as a newly elected government takes the reins and the European Union (EU) emerges from the remnants of the Great Recession of 2009. Of all the EU countries, Poland was the only one to avoid a deep recession due to the economic downturn [1]. However, as a result, Poland was lulled into a false sense of complacency and failed to take advantage of its relative strength during the financial crisis to restructure its economy. Nevertheless, at the beginning of 2016, Poland is still in good financial standing to implement key policy changes to continue to encourage steady economic growth.

Poland’s ranking as 85th in the world in terms of ease of starting a business, indicates that entrepreneurs still face challenges [2]. This eastern European nation is not exempt from the government red tape and overbearing tax systems typical of emerging markets. These policies are particularly burdensome for entrepreneurs and are prime opportunities for revision towards economic liberalization. Poland has made steady progress in the tax systems domain, now ranking 58th most complex out of all tax systems worldwide, a solid jump from its position as 29th in 2015. However, the number of hours spent on tax-related issues by Polish entrepreneurs, 271 hours per year on average, is still significantly higher than the 173 hours per year average for other EU states. Poland should continue close the gap separating it from western countries by drawing on best practices available in other EU countries. For example, a large-scale electronic settlements program available in many other countries, known as “e-taxes” was implemented, significantly improving the ease in which entrepreneurs can address tax-related issues [3].

Unfortunately, new and troubling obstacles seem to be on the horizon. The newly elected Law and Justice Party has signaled that potentially dramatic changes in the direction of nationalism may soon be unleashed. The government has alluded to new levies targeted at the largely foreign-owned banking and retail sectors, and taking control of public broadcasting outlets and manufacturing facilities currently operated by foreign companies. These propositions by the Law and Justice Party were presented as lightly reformist during the campaigns in 2015, and these surprising nationalistic changes do not bode well for enticing foreign investment and spurring entrepreneurial activity [4].

Furthermore, the Law and Justice Party has found itself under investigation by the European Commission over possibly violating European Union rules and operating in an undemocratic fashion. The EU argues that the Law and Justice Party has weakened Poland’s separation of powers by overriding Parliament and appointing its own leaders and regulations [6]. For example, the government appointed Deputy Culture Minister, Jacek Kurski, as head of all public television channels, including the most-watched station [5].

Last but not least, future GDP growth in Poland is also highly dependent on population and demographics. Entrepreneurial ambitions are on the minds of many young people in the world today and stifling these aspirations does not bode well for the Polish economy. It is important to stymy the continued outflow of educated young Poles to other EU Member States and the aging Solidarity-era baby boom generation [1]. The new generation is highly sensitive to the economic sentiments and difficult geopolitical situation of the country, demonstrated by recent studies showing that over 1 in 5 Poles under the age of 35 is strongly considering emigration [6].

In summary, Poland needs to recognize that further nationalization is only going to isolate this emerging market and possibly reverse the significant progress made since the dissolution of the Soviet Union.

[1] http://www.forbes.com/places/poland/

[2] http://www.wsj.com/articles/polands-backsliding-began-long-ago-1449608772

[3] http://www.worldbank.org/en/news/press-release/2015/11/19/polish-tax-system-becoming-less-complicated-but-it-still-needs-reforms

[4] http://www.nytimes.com/2015/12/12/opinion/why-poland-is-turning-away-from-the-west.html

[5] http://www.nytimes.com/2016/01/12/world/europe/head-of-polands-governing-party-leads-a-shift-rightward.html?_r=0

[6] http://www.thenews.pl/1/9/Artykul/204956,13-million-Poles-want-to-leave-country