The Polish government has never missed an opportunity to point out how Poland has been the only EU country to avoid an economic contraction throughout the global economic crisis. And this is certainly something worth highlighting. For although economic growth has significantly slowed and unemployment grown over the past couple of years, the maintenance of positive economic growth in Poland has allowed millions of people to avoid further economic hardship.
The reasons for Poland's relatively positive economic performance and its ability to keep out of recession have been less comprehensively considered. The present government is keen to take the credit for this – but then it has actually done.. well not too much since it got elected. More generally 'economic experts' in the country have tended to argue that the country's economy is more competitive than many of its West European rivals, due to the extensive liberal reforms that the country has undergone during the past twenty years. Unsurprisingly their recipe for further economic success is therefore more liberalisation, privatisation and cuts in social spending.
Yet this story of 'creative destruction' does not concur with actual economic reality and has more to do with ideology and narrow economic interest. The present global economic crisis has been primarily caused by a collapse in fixed investment. Therefore:
'Decline in fixed investment accounts for approximately 96% of the fall in GDP in the OECD area as a whole and for 76% of the decline of GDP in Europe. In three countries - the US, Spain, and Portugal - the decline in fixed investment was greater than the decline in GDP. In Japan, France and Greece the proportion of the fall in GDP due to the decline in fixed investment was over 70%, 80% and 90% respectively. In every country except Germany the fall in fixed investment was the single biggest component of the decline in GDP. In short the decline in fixed investment entirely dominates the Great Recession'
Just as we can understand how the collapse in fixed investment has led the economic crisis so we can also see how those countries that have managed to maintain or increase fixed investment have been least affected by the crisis. This is most evident in China, whose government reacted to the onset of the financial crisis with a large increase in fixed investment.
So what about Poland? Well we would expect that for Poland to have avoided falling into recession then there must have been an increase in investment. However, figures recently released by the national statistics agency have shown that private investment has fallen sharply in recent years. Furthermore this fall in investment has been greatest this year. Therefore in June 2010 the overall year-to-year fall in private investment was 17.7% - declining for example by 20.8% in construction and 15.6% in buying machines, tools and vehicles. However, this fall in investment has been offset by public investment. The money to finance this has come primarily from the EU (through cohesion funds), supplemented by funds from the Polish government.
In the 2007-13 EU budget, Poland has been allocated up to €67bn in structural and cohesion funds. It has become the largest single receiver of EU funds – gaining, by February 2010, a net sum of around €21.4bn. Furthermore, over 1.4 million Polish farmers have obtained agricultural subsidies adding up to €5.3bn (in 2009 the total figure was €2.98bn, which is expected to rise to more than €3bn in 2010.) The Polish government estimates that around half of the country's growth in 2009 was created by investments, jointly financed by the EU. A total sum of 18bn zloty was spent on building roads, bridges and sewage works alone in 2009, which is expected to rise to around 25bn zloty this year.
Therefore, public investment has managed to counterbalance the decline in private investment in Poland. There are a number of conclusions to be drawn from this:
1. It is essential that the government commits as large amount of its own funds as possible in order to gain the optimum amount of EU money available for investment from the EU budget until 2013.
2. This should be seen as an investment in the country's economy that will bring future rewards. The committing of such government money should not be used as an excuse to cut back on public spending in other areas which is also contributing to the country's economic growth and social welfare.
3. The neo-liberal mantra of 'private good – public bad' – continually espoused in Poland has been shown to be false during the present crisis. If it were not for the present influx of EU funds (which ultimately is public money at an EU level) supplemented by national government money, then Poland would have suffered a far greater economic downturn. It should also be understood that this is a form of economic redistribution towards the poorer areas in the EU – which is something that liberal politicians have consistently opposed in Poland at a national level.
4. The forthcoming negotiations around the next EU budget, to come into force in 2014, will be of the utmost importance. Already some inside the EU are using the crisis as a reason to argue for the abolishment or reduction of cohesion funds. The richer countries inside the EU have made huge profits out of EU enlargement – e.g through export of goods, monopolisation of financial and consumer sectors and import of cheap labour. If the EU were to decrease or even eliminate the cohesion funds then it would be damaging not only for countries such as Poland but would also threaten the whole process of European convergence.