EUOBSERVER / COMMENT – Around this time last year, with Europe still in recession, Poland’s average per capita income grew to more than $12,196. Without fuss or fanfare, Poland had joined the group of countries classified as high-income economies by the World Bank.
At the time, though, what made the headlines was the fact that Poland was the only member state of the European Union that had avoided a recession in 2009. This is no mean achievement. What is even more impressive is that Poland has the longest record of uninterrupted economic growth among the formerly Communist countries of Europe and central Asia. 2011 will mark its 20th consecutive year of economic expansion, from an average income of about $2,000 in 1990 to more than $12,500 today.
What is perhaps most remarkable is that Poland has escaped the formidable “middle-income trap”. A few years ago, report by the World Bank, An East Asian Renaissance, observed that while many countries have crossed the income threshold of $1,000 per capita to become “middle-income economies”, only a handful of countries have sustained growth long enough to become developed economies. Poland is now a member of this select class.
Poland’s success raises two questions. What did Poland do to get here? And what should it do now? Policymakers in the formerly Communist economies – indeed all middle-income countries – would profit greatly if they knew the answer to the first. And Polish citizens and statesmen may benefit from getting clues about the second. These are questions to consider with care. What follows are some points to ponder.
Poland’s prosperity owes much to three old fashioned ingredients: sound money, economic freedom, and a modern education system. The early years of transition were plagued by high inflation in all formerly Communist countries: many had triple-digit rates of inflation. But Poland brought down inflation in every year in the first decade of transition—from more than 500 percent in 1990 to less than 10 percent in 1999. And inflation has been kept below five percent since 2000. Poland’s National Bank has been a bastion of stability.
Second, step by step, Poland liberalised its economy. A slew of reforms – some unpopular at the time – made it easier to do business, and forced harder budget constraints on state-owned enterprises. Polish producers became competitive abroad. About $100 billion of foreign direct investment flowed in since 2000. Poland is now a part of a close-knit production network of European enterprises. In 2009, when Germany provided a fiscal stimulus to the auto industry through its cash-for-clunkers scheme, Fiat, Opel, and Volkswagen factories in Poland supplied many of the cars. Last year, Polish exports to Germany grew by 25 percent. Poland has taken advantage of being in a good neighborhood.
Third, Poland made education a top priority. Thanks to reforms begun in the late 1990s, Poland has greatly reduced the number of students doing poorly in school. In 1990, half of all secondary school students were streamed into a dead-end vocational track. Poland had one of the lowest education levels in Europe, and only one Pole out of ten aged 25-34 years had university education. Reforms led to increased secondary and higher education qualifications, made educational opportunities more equal, and improved the quality of schooling. Today, Polish 15-year olds read as well as those in the US Midwest, three out of every ten 25-34 year olds have attended university, and young Poles are valued as workers by businesses in Britain, Germany, and other countries.
To be sure, a lot still remains to be done. The fiscal deficit needs reining in. Labour-force participation rates should be higher, and labor markets more flexible. Regional differences in access to education and health services can be made smaller. And Poland can make its business environment much better: it ranked an unimpressive 70th in the World Bank’s 2011 Doing Business ratings – several spots behind Turkey and the Czech Republic, and even further behind Slovenia and Slovak Republic. This is a daunting policy agenda of structural reforms at home.
But Poland has already earned the right to voice its views about regional and global imperatives, and to be listened to. It has provided a great example of a successful transition from plan to market, and it has been showing the way to a responsible and effective accession to the EU.
Poland is already active in supporting development efforts in Africa and Asia. The time is ripe to scale up its role in development finance for poor and fragile countries. But it is not just their wealth that Poles should share. Even more valuable is their knowledge. It is time for others to learn more from Poland’s development experience so they better understand the challenges that must be met and the choices that have to be made to become a developed economy.
When it assumes the presidency of the Council of the European Union later this year, Poland will take center stage. It will have the responsibility for the stewardship of the most powerful association of nations. And it will have the opportunity to shape the future of millions around the world.
Ngozi Okonjo-Iweala is the Managing Director of the World Bank, and the former Finance Minister of Nigeria and later Foreign Affairs Minister.