Poland: Emerging Europe’s Poster Child
Trade ties with western Europe and a large domestic market power the economy
Poland’s national anthem embodies the tumultuous past and struggles of a country that has survived a legacy of violence, dominance, and aggression, interspersed with periods of freedom. The geometric center of the European continent, Poland enjoys a strategic location, well connected with cities like London, Paris, Vienna, and Berlin. The boundary between the eastern and western European continental masses also runs through Poland.
This diminutive country occupies 1.4% of the area of the European continent, with a population size 12% of the U.S. Yet, like the long-lived oaks that it has nurtured for several centuries, Poland has always harbored towering ambitions. Home to 11 Nobel Prize winners including the revered Pope John Paul II, brilliant astronomer Copernicus, musical maestro Chopin, and renowned physicist Maria Curie, the country prides itself on its eclectic contributions to the world. Poland also symbolizes one of the most remarkable transitions from communism to a market-based economy in modern time.
Turbulent yet triumphant
The genesis of Poland, a country that has endured a strife-laden past, can be traced back to the 10th century. Poland has suffered aggression, division and partition of its territory on numerous occasions by Austrians, Prussians, Russians, and Germans. For nearly a century since 1795, it completely lost its existence as an independent entity. However, the indomitable Poles fought resolutely against foreign dominance throughout the 19th century. Following the Great War, Poland literally emerged from obscurity, regaining its identity as a separate country in 1918. Yet, World War II and German occupation proved to be the harbinger of fresh turmoil and violence in Poland. A case in point was the ghastly incident which left a deep scar on the moral consciousness of a nation, known as the Katyn massacre. During April-May 1940, the Soviet secret police, on the orders of the politburo and Josef Stalin, murdered some 22,000 Polish nationals in the Katyn forest in Russia. The ensuing wartime struggle culminated in 1945 with the Soviet capture of Poland and a subsequent treaty between the USSR and Poland delimiting the Soviet- Polish frontier.
A Soviet-backed communist regime came to power in Poland after World War II. Successive agitations by the Poles for greater freedom were throttled by the communist hardliners wielding power. However, winds of change harbored a workers’ movement in 1980, resulting in the formation of the Solidarity trade union. The government tried to suppress the movement, but eventually succumbed to the people’s will. Partially free elections were held in 1989, which led to the formation of the first non-communist coalition government in Eastern Europe. Widespread success for Solidarity catapulted Lech Walesa, the trade union leader of humble origins, to the position of the first popularly elected President of Poland. Under the Polish constitution, as it stands currently, the President has fewer powers than the Prime Minister, but has a significant say in foreign policy. In the elections held in October 2007, the pro-Europe, Civic Platform party emerged triumphant with Donald Tusk assuming the Prime Minister’s position.
Poland’s rich cultural heritage, which has evolved for over 1000 years, is a striking blend of both eastern and western influences. The country’s amicable approach to inspirations from other parts of the world is reflected in the versatile character of its own art and culture. Polish traditions, art, dress, and cuisine span the whole spectrum of diverse European styles. While Polish literature dates back to the 14th century, the country also prides its contributions to avante garde literature and theater in the 20th century. At present, more than 98% of the nation’s people are Poles, with small groups of Ukrainians, Belorussians, Germans, Slovaks, and Lithuanians. The Polish population is largely urban centric, with 60% of the population living in cities.
Emerging as a market economy
Poland began its transition to a market-based economy after it came out of the communist bloc in the late 80s. Democracy restored, the economic rebirth of the country followed a well-defined path under the umbrella of the European Union (EU), which admitted Poland into its fold in 2004. Poland also became a member of the military alliance NATO and the Paris-based Organization for Economic Co-operation and Development (OECD).
Poland’s geographical advantage of being located at the center of Europe also facilitated the country’s rapid economic turnaround. It is widely acknowledged that the EU funds were instrumental in developing Poland’s infrastructure and propelled nearly 100% growth in Gross Domestic Product (GDP) per capita. The highways that were built using the funds connected Poland to Western Europe, opening up the country’s borders for trade. Institutions were strengthened and regulations laid down in government functioning. More importantly, Poland steered clear of launching populist measures during its transition phase.
A market economy gradually took root and foreign investment started trickling in with Germany emerging as the country’s largest trading partner. In fact, Poland’s economic growth picked up pace during the years that followed its accession to the EU. Overall, the country clocked over two decades of uninterrupted growth beginning in 1995, a stupendous achievement by any yardstick. Poland’s political posture also helped improve its global standing as it closely aligned with the U.S.-led campaigns in Afghanistan and Iraq during the initial years of the new century.
The engines of growth
Poland’s close proximity to Germany, the Czech Republic, Slovakia and Russia helped it foster trade relationships with all these economies. While Germany, Czech Republic and the U.K. comprise Poland’s chief export destinations, Russia, Germany and China are the economy’s main import partners. Naturally blessed with a European identity, the aspiring Poles always had one goal in mind: a closer integration with the continent that would be crucial to their economic and social development.
The country’s population, which is about 38 million, enabled it to develop a domestic market large enough to sustain itself even in times of a slowdown in trade. What’s more, Poland focused on developing its valuable human resources by improving the quality of education. A large section of the young Poles make it to the university level, while the remaining manage to attain basic functional literacy, an achievement comparable to some of the country’s peers in Western Europe and North America. Small wonder Poland has leapfrogged other emerging economies in Europe in all-round development.
Half of Poland’s population falls below the age of 35, while many European countries are battling the burden of an aging demographic. Thanks to its young, educated workforce, global corporations set up their research and development centers as well as manufacturing units in Poland. The country has also emerged as the European center of modern Business Process Offshoring (BPO) services, providing employment to millions of young Poles. Combined, the services sector contributes about 64% of Poland’s GDP.
Poland’s economic success came into the limelight during the global financial crisis of 2008-09 when it turned out to be the only European Union member to escape a recession. The country’s close economic and political ties with Germany helped. Poland’s flexible exchange rate, access to international markets, a central bank with an IMF credit line, and sound economic policies helped the country clock growth during the crisis, The Heritage Foundation pointed out in an analysis.
For businesses to prosper, a proper regulatory framework is a generally a prerequisite. Thanks partly to the EU mandates for its member-states, over the years Poland has succeeded in establishing the rule of law in the country. The bankruptcy process has been streamlined and labor regulations made more stringent. Structural reforms, openness to global trade and commerce, competitive tax rates and greater regulatory oversight expedited the country’s transition to a free-market economy. Poland also put in place other attributes of an evolving economy such as a free press and an independent monetary policy. Thanks to these reforms, Poland’s business climate improved remarkably, which pushed up the country’s ranking for the ease of doing business.
Traditionally, agriculture has been the mainstay of the Polish economy, but increasingly lower investments in the sector have made the country uncompetitive in food production, The Heritage Foundation said in a write-up on the economy. Still, the country is a pioneer in organic agriculture and a leading exporter of milk, meat, fruits and vegetables to some EU members as well as Russia. Poland’s private sector – which comprises the automotive, aviation, pharmaceuticals, steel, services and machinery sectors – contributes about two-thirds of its GDP.
Industrial growth is integral to the economic development of any nation and Poland is no exception. The country has a 100-year tradition in the aviation industry. Poland’s Aviation Valley, located in the southeastern region of the country, is renowned for its aerospace industry and pilot training centers. The region produces 90% of the Polish aerospace industry’s output, which is exported to over 11 countries the world over.
Besides aviation, the automotive industry is also a prominent part of Poland’s manufacturing output. One of the first sectors to be privatized in the early 90s, the industry exports about 95% of its goods and specializes in the production of spare parts and accessories. Global auto makers, especially from Germany, are drawn by Poland’s low-cost, high-skilled labor and locational advantages.
Manufacturing of domestic household appliances, centered around the special economic zone at Lodz, highlights Poland’s industrial prowess. Foreign investments have been pouring into the sector, making Lodz the largest white goods production center in Europe.
Poland relies on coal for most of its energy needs as its oil resources are limited. Still, the country is home to a major European oil refiner and a prominent petroleum retailer. In the metals and mining sector, Poland boasts some of the leading silver and copper producers in the world.
Poland has made a name in financial services in central and Eastern Europe with Warsaw as the hub of activity. The Warsaw Stock Exchange was privatized by the Polish government in December 2010, making it the biggest in central Europe.
The road ahead
Poland’s economic competitiveness is to a large extent dependent on its low manufacturing costs. As the country adopts new technologies going forward, Poland should be an attractive manufacturing alternative for more reasons than just lower costs. Still, innovations would require large additional investments over the next decade. And as a Forbes magazine report points out, the shortage of skilled labor may limit productivity. This challenge could be addressed by opening up the labor market and by providing vocational and technical education to young Poles.
Despite the remarkable economic strides made by Poland over the years, the fruits of progress have not been evenly distributed. Besides the clear regional divide in terms of growth, poverty still persists in areas that have missed the development bus. Poland needs to accelerate growth and make it more inclusive, a report from The World Bank pointed out. Creating a dynamic business environment, building supportive infrastructure and strengthening public sector institutions could help foster growth, the report added.
Yet, a stable democracy, favorable demographics and a large domestic market make Poland a leading emerging economy in Europe that appears capable of withstanding economic downturns. Close trade and business ties with the richer Western Europe are an added bonus.