November 26, 2014
A conference commemorating 25 years of Poland’s political transformation was held at the Warsaw School of Economics on November 19th 2014. Interested in what conclusions can be drawn from past events and how these can be used to shape the future, I decided to participate. The programme of the conference was a particular attraction, featuring speeches by such reformers as Leszek Balcerowicz, Jacob Frenkel (Chairman of JPMorgan Chase International) and Stanisław Gomułka, who were advisers to Tadeusz Mazowiecki’s administration 25 years ago, as well as Lajos Bokros, who stood behind Hungary’s reforms, and Oleh Havrylyshyn, a lecturer at the University of Toronto and Ukraine’s former deputy minister of finance. Further stoking my interest, the conference was held under the patronage of President Bronisław Komorowski, rectors of Katowice, Kraków, Poznań and Wrocław Universities of Economics and of the Warsaw School of Economics. In Poland, the economic discourse on evaluating the transformation is dominated by the critics of the shock therapy, whereas other nations tend to regard the achievement with undisguised admiration. Jacob Frenkel summed it up wonderfully, quoting Mark Twain, who – asked how he liked Wagner’s music – said: “it’s better than it sounds.” Lajos Bokros argued that being able to celebrate the 25th anniversary of the transformation, and under official government patronage at that, is an extraordinary privilege few countries that followed Poland on the path to transformation can enjoy. Sadly, Hungary is not among them.
Stanisław Gomułka delivered an interesting lecture in which he matched the lessons of the transformation with Poland’s current challenges of sustaining economic growth. He argued that the biggest threat to maintaining a high growth rate is the middle income trap, which can be avoided by expanding Poland’s innovation capacities. This coincides with my view of the matter, which I have presented on this blog. Professor Gomułka believed that the Czech Republic and Hungary have already fallen into the trap, but Poland may yet avert it. His arguments, which represent a strong message to economic policy makers, were the following:
‘A long-term economic growth rate per capita depends nearly entirely on the rate of qualitative changes, such as technological and institutional innovations as well as employees’ skills. In well developed countries these changes result primarily from the innovativeness of the entire world sector of R&D (research and development) and the national level of education. In less developed countries, that is the group of so-called catching-up countries to which Poland belongs, their own innovative activity is marginal and will be insignificant for yet a number of years , while the access to the latest innovation will continue to be strongly limited. Technological changes in economy within this group depend nearly entirely on the absorption of foreign innovations, primarily those easily accessible. This absorption occurs mainly through the channel of investment activity. In the case of high investment in relation to GDP, technological changes in the catching-up countries, in percentages terms, may be for a certain period of time even several times bigger than in the most developed countries. In Poland, as a result of transformation, the access to the world resources of knowledge and technology of older generations as well as the absorption capacity of the economy have considerably increased. This explains the paradox of a high innovativeness of the Polish economy and a low innovativeness of the Polish R&D. However, with the GDP per capita at a level of 50-70% of the most developed countries, further fast technological progress of a catching-up country is becoming more difficult, as access to technologies of newer generations in necessary. At this level of development the process of catching-up may be stopped. Economists speak about the so-called middle-development trap or middle-income trap. Further progress in gap bridging is possible, but the pace of catching up as a rule becomes slower. This pace may be sustained or the pace of the growth slowdown may be reduced in two ways. One way is to strongly raise the country’s own innovation and absorption capacity, especially directly by companies. The other is to care more about the factors which increase the attractiveness of the country for investors from the most developed countries. These factors include for example a good quality infrastructure, high quality vocational and university education, stable and entrepreneur-friendly legal and financial system, low political and exchange rate risk, low interest rates and low inflation.’ For a complete text, see: http://25yearsoftransformation.pl/wp-content/uploads/2014/09/Gomulka_Transformacja_EN.pdf.
In future entries, I will talk about how we can successfully bolster the Polish economy’s capacity for innovation.