L. Balcerowicz summarizes post socialist experience

translated from polish by Ambrosi Grishikashvili

We believe that translation and publishing of the interview that L Balzerowicz gave to a popular Polish newspaper “Rzhechpospolita” before his visit to Georgia in late October will be an expression of gratitude on our part.

Both formerly, when he worked as Georgian president’s adviser, and in the recent years, being the head of Polish National Bank, he has shown attention and care towards our country. In particular, it was his initiative that Polish Mint should start to coin money with images of Georgia, which, on the one hand, will contribute to raising of our country’s prestige in the world opinion and, on the other, will bring additional financial means to our budget.
Besides, the Polish Mint has already minted a memorable coin dedicated to the Football Championship of 2006 on one side of which Georgian national flag is depicted. It is clear that L Balzerowicz has contributed the lion’s share to all this.
By the invitation of L. L Balzerowicz, the president of the Georgian National Bank – Roman Gotsiridze was in Poland with an official visit on August 1-5. During the visit, along with other arrangements, Georgian and Polish bank experts exchange programs were planned. Poland, Czechia and Hungary: Poland is the leader
“Rzhechpospolita”: 15 years is a good round figure. Perhaps we can draw certain conclusions…
L. Balcerowicz: It is not difficult to imagine what Poland would look like if the socialist regime continued its existence. We do not have to go far for an example, it is enough to look at neighboring Belorus. Those who know the history of the country at least a little will agree with me that over the past 300 years there was not a better period than the last 15 years from the viewpoint of opportunities and chances.
“Rzhechpospolita”: But we really can not boast of the employment indicators…
L. Balcerowicz: It is true. But the reforms can not be blamed for that. On the contrary, this situation is stipulated by non conduction of the reforms: This is the fault of the anti reforms – excessive regulation and immense social load of the economy. We also should not forget the fact that in Poland during the transformation period, in comparison with other countries, a natural increase of number of people in the 15-64 years old age group was observed.
“Rzhechpospolita”: But the Czechs and the Hungarians has surpassed us from the viewpoint of attraction of foreign investments…
L. Balcerowicz: Direct foreign investments are especially important. The Czechs managed to attract them in the amount of 3700 USD per person. This is much more than the similar indicator in Chile. In Hungary this indicator makes up 2100 USD. As for Poland, it is equal to 1100 USD per person, which is far lesser than the similar indicator in Slovakia, Estonia and Slovenia. According to this indicator, we are approximately at Lithuania’s level.
“Rzhechpospolita”: The situation in this sphere has remained unchanged for many years. Why is it so?
L. Balcerowicz: In my opinion, low privatization rates hamper this. For example, Czechia has carried out serious privatization of the energy sector with active participation of foreign investors. Over the recent years, privatization rates in Poland has considerably dropped, and it is good that now the inverse process can be observed. Many factors hamper the inflow of investments. Including, for example, the low level of infrastructure. It can be said that, from this point of view, the Lithuanians are in a better situation.
“Rzhechpospolita”: Probably our lag is stipulated by the fact that our politicians were considerably cautious about privatization?
L. Balcerowicz: In general, reforms are carried out by big politicians who can look into the future and are not afraid of taking unpopular steps. For example, Aznar (Hose Maria Aznar, a former Prime Minister of Spain) was one of this kind of politicians, who largely contributed to the progress of his country and accelerated mobilization of the Spaniards for entry into the Euro zone. Now Spain, from the viewpoint of fiscal discipline, looks much better than Germany.
“Rzhechpospolita”: But the majority of politicians are not so big ones…
L. Balcerowicz: It depends on how we choose people. I am just fascinated with Slovakian example. In this country the reforms just could not start moving forward, but with Dzurinda’s becoming the Prime Minister it turned into the leader in this sphere. What happened then, after all the national character of the Slovaks, who did almost nothing in this direction at the time of Mechyar’s premiership has not changed?! It is only their political will that has changed. Radical reformers were also those people who headed Baltic countries during implementation of the reforms. They were young people who used to give lectures before.
Poland in the region: there are those that are better than we are
“Rzhechpospolita”: As it is clear, Poland does not look bad compared to Hungary and Czechia. What position does Poland have in the whole region?
L. Balcerowicz: It can be said without embarrassment that, from the viewpoint of improving of the living standard, Poland is one of the leaders among the post socialist countries. At the same time it must be said that over the recent years some of the former USSR countries have been developing at considerably higher rates than the Central European countries. Among them is, for example, Armenia, that carried out profound reforms, which in its turn stipulated high rates of economic development.
“Rzhechpospolita”: Yes, but Armenia is still a poor country. Then, in what is its rapid economic development expressed?
L. Balcerowicz: The existing poverty is mostly the remnant of the past. For example the fact that the taxation level in relation to GDP is considerably lower there than in our country speaks of the national economy’s availability, that is taxes in Armenia are twice lower than in Poland. The situation in fiscal sphere is better there too. The inflation rate is low, it is easy to start a business, and, in general, freedom in this sphere is felt.
Lithuania is probably the country that has made more than others for easing the fiscal load in Central Europe and this way accelerated economic development. And we should not forget that it happened under socialist Brazauskas’s leadership.
At the same time, I do not know any other country besides Poland that is such economic “tiger”, and that has such non-optimal fiscal sphere.
“Rzhechpospolita”: But what so special happened in Lithuania?
L. Balcerowicz: Almost all kinds of taxes were cut there. If we had made it in Poland, 90% of the economists would have said that this kind of thing is good in the long run only, but in the short run it would entail a drop in demand, and correspondingly reduction of GDP.
“Rzhechpospolita”: Over the past 15 years Poland has become much closer to other developed countries…
L. Balcerowicz: It is true. But at the same time it is not difficult to imagine what would have happened if Poland had not parted with socialist legacy. Poland’s position in international relations has drastically changed. Now we export so many description of goods that it was impossible to dream of before. Not so long ago in conditions of the centralized planning a planner should have been a genius to foresee all this kind of things. Hayek did not speak in vain that market is a mechanism for encouraging discoveries. But who are these discoverers? They are millions of free people, entrepreneurs and ordinary workers who to the maximum realize their opportunities. That is what on which market economy is based in contrast to the planned one.
“Rzhechpospolita”: Though there are many myths in our appraisal of reality…
L. Balcerowicz: A really giant technological transformation has been carried out in Poland. At the same time, since buying of foreign licenses was not registered in any of governmental programs, it has passed unnoticed for many people. It would not be right to judge about this sphere only by large sums allocated for research works, feeling sorry that we will not be able to allocate as much as the United States.
This kind of comparisons is completely erroneous since we are at different levels of development. The US is the word’s leader and therefore there is not much that it can learn from others, and for this reason it has to allocate more and more money for research works. As to the less developed countries, they can get knowledge from outside, which gives them a great opportunity for development. This opportunity was used by all the countries that are successful now – starting with Ireland and ending with Japan.
“Rzhechpospolita”: The progress in the economy is obvious, but there is much talk in the society about the latter-day and still growing social inequality…
L. Balcerowicz: Big difference is not always worse than a little one. Should we plan an ideal material equality? Though during the past period a lot of such differences were concealed. If the matter concerns the difference in official incomes, it would be good to familiarize ourselves with corresponding statistical data, from which we could see that in those post socialist countries which achieved rapid economic growth, this kind of difference is comparatively less than in the countries where progression is not observed, and even more: regression takes place…
Frequent protests proclaiming that in Poland the difference in incomes is continuously growing do not correspond to the results of the studies. Moreover, the opinion that low economic rates are better than having this kind of material gap is unacceptable. The factors inhibiting economic progress would become the reason for poverty and at the same time a serious basis of moral inequality.
How to build capitalism without own capital
“Rzhechpospolita”: In your opinion, what role did foreign capital play in modernization of Polish economy?
L.Balcerowicz: Almost every country, even a rich one, tries to attract direct foreign investments. If we also take into account the fact that communism in Poland eradicated both capital and capitalists, then it will become clear why it is important for us to attract foreign capital. Especially because in certain sectors of the economy large capital and special knowledge is necessary.
“Rzhechpospolita”: Did foreign capital helped Polish banks?
L. Balcerowicz: Without it we would have a rather weak banking system. From certain point of view this system is considerably better than the American one. For various reasons, a check system is again widespread everywhere in the United States.
There were two alternatives in the sphere of privatization of banks. Since the volume of the domestic capital was very small, the Central European countries allowed foreign capital to actively participate in privatization of banks. The alternative was to retard the privatization process, or to preserve the old role of the state property in this sphere, during which politicization of economic decisions is especially dangerous for the whole national economy. Poland, Czechia, Slovakia, Hungary chose the first way. And the result? The specific share of foreign capital in their banking system is big. It is noteworthy that similar processes has taken place in Mexico, Chile, New Zealand, etc.
The situation is different in Russia, where for some reasons the inflow of foreign capital was inhibited. As a result of it, a specific banking system was formed in the country, where one state bank has a dominant position. A similar situation is in China, where the banking system is experiencing a pressure on the part of the state, which represents a big danger for the national economy.
“Rzhechpospolita”: But privatization gives rise to negative emotions within the society…
L. Balcerowicz: It is true, but what would happen if in Poland the state property were predominant the way it takes place in Belorus? Do you know where these dissatisfied voices come from? Many politicians do not want to put up with the situation when they lose control over the state owned enterprises. Privatization holds them away from the state owned enterprises. If the dominant position of the state remained in the national economy and privatization had not been carried out, we would not have got rid of socialism. We also should not forget that there is privatization and privatization. Very often along with decent privatization a wild one takes place, and is often carried out under cover of the state property. If the first one inhibits the plunder of the assets, the second one, on the contrary – contributes to it. That is why when we hear the voices against privatization we always have to find out who is shouting and what interests he is guided by.
We have entered the EU, and soon we will enter the single European currency zone
“Rzhechpospolita”: What do you think, did entry into the EU, opening of the markets, harmonization of the laws give a serious impulse to the development of our national economy?
L. Balcerowicz: A simple answer is as follows: when the reformers headed the government all this could not play an important role since they intended to reform the economy all the same. But as we did not always have this kind of government, entry into the EU, opening of markets, harmonization of the laws gave a serious impulse to our national economy.
“Rzhechpospolita”: We have entered the EU, but we are still far from introducing Euro. Will striving for introducing of Euro and fulfillment of the terms necessary for this purpose be the main stimulus for our development?
L. Balcerowicz: It depends on us whether the introduction of Euro, that is invigoration of our state finances, is far or not. Euro is a good prospect for Poland. I hope that it will help to attract large investments in the country, and the export as well as general economic indicators will grow.
“Rzhechpospolita”: What do you think about the tax structure that exists in Poland now?
L. Balcerowicz: From certain point of view it is better than in the United States, but much worse than in the countries that are the leaders in this sphere.
“Rzhechpospolita”: This kind of statement is rather provocative by character…
L. Balcerowicz: There is quite complicated tax structure in the United States, though the taxes are low. In Poland the total share of taxes in GDP is high, because we have a big volume of various on-budget social expenditures. Every argument concerning the reduction of taxes should start with the reduction of this kind of expenditures. Otherwise it would be an escape from reality.
In the opinion of some people the tax structure in the Central European countries is much better than in France and Germany. In particular, the specific share of direct taxes is bigger than of the indirect ones. And in view of development the first one is less harmful than the second one. That is why the demand of some representatives of the EU that we should artificially increase the latter is preposterous.
The countryside: the changes are not observed
“Rzhechpospolita”: The reason for one of the serious reproofs is that the appropriate reforms have not been carried out in the country. Its reformation started only not long ago in relation to the entry into the EU.
L. Balcerowicz: The Polish agrarian sector used to be mainly private before, though, from a certain point of view, it was of socialist nature too. This sector was characterized by bribe taking, deficit, large-scale subsidies; the arrangements intended for this sector were too politicized, and so on. That is why the radical changing of the previous state of affairs in the sector badly upset both the farmers and the lobbyist circles associated with them.
“Rzhechpospolita”: But there are people living in the country who are dissatisfied and their number is not small…
L. Balcerowicz: Yes, but what could have been done? Should we have granted more subsidies or looked for the new markets for selling their produce? I supported the second variant, though I had very few followers in this struggle.
Besides, the positive changes that have taken place in the country are not appreciated. There is quite a large number of farmers who managed to modernize their farms. And the modernized canning production is of great help to them in this matter. The latter is a priority brunch of industry now. Just look how many new small-scale enterprises have been launched in the country over the recent years.
“Rzhechpospolita”: But the unemployment problem in some regions is still very serious, especially in those ones where Pegeers (agricultural enterprises of soviet type in Poland) used to exist…
L. Balcerowicz: Probably it would be good to arrange serious debates on the subject of former Pegeers. It is their reformation that represents the most demonized sphere of Polish privatization.
Sentiments and arguments
“Rzhechpospolita”: Let us return to sentiments again. A serious sentiment of discontent can be felt not only in the country but in the whole society. How can you explain that?
L. Balcerowicz: If we explain the sentiment of discontent during the reforms, it is necessary to imagine the situation that could still exist if there were socialist system in the country. Let us look at the state of affairs for example in Belarus, Uzbekistan, Turkmenistan. There people are either intimidated or stupefied by confrontation.
“Rzhechpospolita”: It is obvious that the reforms give rise to discontent…
L. Balcerowicz: It is natural. When the social order changes, the prestige of work changes as well. Those who were at the top under the previous system cannot always stay there after the changes. In our country, for example, it concerns miners. The old system required a lot of energy, as a result of which the work of those people who mined coal was appreciated. For example, accountants, information science specialists and others were disregarded. In connection with changing of the system the miners have been placed lower on the social ladder, but, for example, accountants and information science specialists have found themselves in a better position. It is natural that those people whose position deteriorated as a result of the reforms would not be satisfied with it. But is that enough to give up the reforms in the country?
“Rzhechpospolita”: But can this explanation help an unemployed person in some way or other?
L. Balcerowicz: Of course, not. But to help them it is necessary to eradicate unemployment. Where it originated from in Poland? It is clear that not from the free market. First of all it was stipulated by prohibition of the free market by excessive regulation of labor relations, and very high, almost pathological, rate of public assistance. The latter concerns not only assistance to the unemployed people but large expenditures for untimely pensioners, assistance to invalids, etc. For all this a mobilization of huge budgetary funds is necessary, which, in its turn gives rise to increasing of taxation and unemployment.
“Rzhechpospolita”: No one propagandizes the changes like those who are satisfied with them. Why formation of the medium stratum of society, which is the main advocate of free market, has not taken place in Poland?
L. Balcerowicz: Who said that it has not been formed? But it is busy constructing capitalism. Who comes out with protests? Mainly those people that have no occupation, or those ones who are well organized. But it is illusion that all entrepreneurs are liberals and like competition. What is good for a separate entrepreneur is not always good for the whole national economy. And vice versa.