Monday, December 5, 2011

(53) 2 - The Economy of Poland I: A Look From Within

        After my mother died in January 2006, my wife Jaga wanted to take care of her ailing father.  Thus we decided to give our four children the opportunity to learn the culture and language of Poland by having them go to school there.  They arrived in June 2006 and I joined them a week before Christmas.  I taught during the spring semester and we returned to the United States in August 2007.  The next year I returned to teach in March 2008 and the rest of the family rejoined me in May.  We returned to Rio Grande, Ohio in August and took John-Paul to Ave Maria University near Naples, Florida to begin college.  Our experience there as a family and my teaching in Poland is detailed in Blogs 43, 44, and 45.
         While in Poland, I wrote about our experiences there, but did not have much chance to share it with others.  The following is what I wrote up on the Polish Economy while there and to share with you in a series of two articles.  Even though we're talking about Poland 2007 and 2008, you can still get a good idea about living in Poland and its reality today. 

       In my next blog I will do an update on the Polish economy based on current data and observations of friends in Poland or visiting there. From what I hear, the Polish economy has done better than other European countries in weathering the storms of the international banking crisis and now the debt crisis which threatens to topple the Euro. I will periodically update it within that same blog: "The Economy of Poland II".
        I am sharing my observations of different aspects of Poland in six sets or chapters: 1) The Church (Blog #46); 2) The Economy; 3) Tourist Attractions; 4) The People and Their Culture; 5) The Schools and the Youth; and 6) Contributions of Poland to America and Western Civilization.  If you are of Polish descent, the last one will make you really proud of your heritage.  I found the research I did on it to be fascinating.
       This set of observations or Chapter 2 is a series of two on the Economy of Poland. 
A Look From Within

        Globalization has hit Poland. McDonald's is all least three in Kielce alone.  Cell phones and satellite dishes, bring TV from all over Europe, are everywhere as are computer stores…..”Komputery”, “Notebooki”, internet places, etc.  Most homes are hooked up to the internet.  Some Polish kids here were on MySpace before I ever heard of it.  You can get just about anything in Poland that is available in the U.S.  The prices are similar with imported goods higher.  The Polish złoty has actually been stronger than the dollar over the past year or two…..3.50 Zł/$ down to the current 2.80.  We hope that the dollar is not beginning a free fall.  Health care, pharmaceutical drugs, and labor intensive services are much cheaper here due to the very low wages and labor costs.  Inflation is at a very moderate 2.1%.

        My students say that as teachers they only get a salary of 1000 złoty (about $373) per month.  How can they live on that?  So they often do tutoring on the side.  Their tuition is 500 Złoty per month.  An unskilled worker and beginning school teacher receive about 700 Zł/month.  No wonder that people put mainly small coins into the collection basket.  Thus most parish priests teach Religion in the public and private schools.  Stipends are also a big help.

     Economic Growth.  Poland is held back by the heritage from socialism of bureaucracy and low productivity in both the public and private sectors.  Nevertheless, it has come a long way since the victory over Communism in 1989, but is still far behind the industrial powers of Europe.  In the middle nineties the growth rate was at a very high 9%.  In 2005, it was a more moderate 3.2% while the growth rates of Germany, Britain, and France are about 2%.  To eventually catch up to Britain, Germany, and France with their growth rates of about 2%, Poland must expand at a 6 – 8% clip for many years.  That is a tall order, but possible.....about  6% for 2006 and 6.3% for 2007.

        Most industry has been privatized.  Foreign investment is high.  The latest ultra modern Warsaw Hilton has opened and two state of the art 11 story office buildings are under construction.  They are in the process of constructing a new terminal in the Warsaw airport which will more than double its annual capacity to about 11 million passengers by 2008 or so.  A new airport in Kielce and a North-South expressway are in the planning stages.  The European Union is expected to invest 60 billion euros over the next six years.
        Migration. With a 16 - 18% unemployment rate and low wages, there has been an exodus of close to 2 million Poles since 2004 when Poland joined the European Union which has no restrictions on movement within its boundaries.  Because of the low birthrate and migration, the population growth rate in Poland is 0 or negative.   Counteracting this, is some immigration from the Ukraine into Poland.  This migration is so alarming because Poland is losing its best people, many if not most of whom are educated.  Poland is bleeding, although the migrants send some money back and some retire in Poland.  Denmark, for example, even places ads for its employment fair in Warsaw.
       Historically, those who immigrate are the more hard working, the more intelligent, the ambitious, the resourceful, the creative.  They have enriched America and will enrich Western Europe.  The weak, the lazy, the less confident, the less resourceful stay home, being too afraid of the risk and uncertainty of a strange culture and a different language.  People who do not see opportunity in Poland go elsewhere to find it.  It's as simple as that.
        The Paradox of High Unemployment and a Shortage of Skilled Workers.   The extremely high official unemployment rate of 18% (the April figure is 14%) is deceiving.  There is a large underground economy.  People register as unemployed and collect unemployment checks of about $250/per month while working at other jobs in the underground economy without reporting such income.  

       Wages are so low that there is little incentive to do menial jobs.  Many won't pick strawberries in Poland, but will do it in Norway for the much higher wages.  It seems that Poland is still suffering from bad habits acquired under Communism, when the people would resist by trying to beat the system in any way possible.....cutting corners, cheating, not doing more work than they absolutely have to, etc.
        Productivity.  Bureaucracy still reigns.  Too many people are writing regulations, shuffling papers, and signing approval, statements instead of producing.  Their tax code with its Value Added Tax (VAT) and frequent changes, I understand, are very complex and time consuming.  Lawyers are very important, but too often don't produce anything when involved with interpreting unnecessarily complex laws.  Thus productivity is very low.  Also crippling are the government mandated non-wage labor costs for pensions that may begin as early as age 55, health insurance, etc.  Businesses can still make a profit by paying very low wages.  These are all disincentives for foreign investors.   
       Better is to increase productivity so that companies can increase wages without having to increase prices.  There are not enough profits for the massive investment that Poland needs.  There must be greater incentives for hard work and innovation, which increase productivity and quality.  Henry Ford had the right idea.  Despite the protests of his competitors, he doubled the wages of his workers, claiming that if they have more money, they will buy more cars which justified his mass production techniques and meant more production, sales, and profits for expansion plus more taxes to pay higher wages to teachers, health care providers, etc.

        Productivity is not simply working harder. It's working smarter. That is to produce more with the same resources and inputs of time, materials, and capital while maintaining and improving quality. At the same time, employees must be continually trained to be more productive. Management should develop the abilities of each employee so that each one would be more productive and be able to succeed his/her boss or other person on the next level.
        I think that businesses should pay more to better workers through higher salaries, merit pay, bonuses, etc. while being allowed to fire the inefficient and incompetent after doing their best to train them.  People must be given incentives and be rewarded for being more productive and innovative.

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