Capitalism the Polish Way — A New Variety of Market Economy?

Such issues are worth discussing and we should also take into account the global crisis, which since 2008 has prompted a critical reflection on the directions of economic change. For the crisis revealed structural contradictions and limitations of neoliberal reforms, which have led, among other things, to mass protests and the emergence of social movements critical of financial capitalism and political systems corrupted by big business, such as Occupy Wall Street in the United States or the indignados in Spain.

The belief that economies are being transformed according to one model, based on the system in the Anglo-Saxon countries, has not been confirmed. For besides the tendency for assimilation, globalization creates two simultaneous processes: preservation of a distinct character of particular economies and the emergence of new configurations of factors of production, institutions and social resources, which make up the various faces of capitalism. An important

manifestation of such phenomena is the role of the BRIC countries in the global economy and disputes over new variants of capitalism— Chinese, Russian, etc. The crisis has also become a catalyst for a new wave of discussion about government bailouts, practiced even in the most liberal economies.

In the European Union the eurozone has split into the core countries, more competitive and better organized, and peripheral countries, dependent on external financial assistance, less innovative and less well managed. The crisis also raises questions about the nature and place of Central and Eastern Europe in the enlarged EU. Since some eurozone countries have a peripheral status, how do we define the position of the post-socialist countries, which joined the EU after 2004? Accordingly, the dominant perspective in the newest research on institutions of the market economy has been the perspective of capitalist diversity (Varieties of Capitalism, VoC). The assumption is that capitalism exists in various versions competing with each other. Different varieties of capitalism enjoy relative successes in various times and under various conditions.

The VoC literature distinguishes two basic models of modern capitalism: liberal market economies and coordinated market economies. In the liberal model businesses conduct their affairs mainly through market mechanisms and contractual relations. In a coordinated economy an important role is played by co-operation going beyond the market and hierarchical control, including employee participation or dialogue between social partners. The United States are considered to be the best exemplification of the liberal model, and Germany of the coordinative one. In the discussions on this subject more models of capitalism have been distinguished: Scandinavian social-democratic model, Asian capitalism, continental capitalism of Western Europe and South European capitalism. Another model which is sometimes defined is state capitalism and different varieties of mixed (or hybrid) market economy, deviating from the “ideal types.”

How in the context of such discussions should we categorize the capitalism, which has taken shape in Poland after 1989? What are its main distinctive features? Initially the dominant view was that the reforms introduced under the Washington Consensus scenario lead to the emergence of new variations of the neoliberal model in Central and Eastern Europe. However, it soon became clear that transfer of Western institutions to much less developed countries, characterized by shortage of capital, absence of the middleclass and a different economic and economic culture, brings results, which fall short of the expectations of the reformers. Also in Poland the transformation showed that optimistic forecasts of “catching up” with the West are coming true only partially and selectively, and modernization generates new problems related to the restructuring of the economy, the costs of reforms and the challenges of globalization. As a result, the countries of Central and Eastern Europe combine—in various proportions—features of liberal capitalism, remnants of the communist system and elements of backwardness sometimes similar to those in non-European countries.

In such conditions, the new forms of capitalism in the region differ from the variants present in developed countries. They are even described with the use of different categories—“emerging markets,” transnational capitalism, a “dependent market economy” or a “semi-periphery of the world capitalist system” controlled by Western countries and foreign capital. In this context, the debate on the Polish model of capitalism leads to several conclusions.

Like other countries in the region, Poland is described with a variety of comparisons and classifications. For the mainstream, defining development standards in line with the approach of international economic organizations, Poland is a leading player among “emerging markets,” with the possibility of joining the group of “mature market economies” (for example in the form of membership in the eurozone) in a near future. One manifestation of such a direction of change is supposed to be narrowing the development gap to Western Europe, measured by the GDP per capita levels—one third of the EU average at the beginning of the transition as opposed to the current two thirds in the enlarged Union. In the last decade, Poland was one of the fastest growing economies in the OECD. As the only EU country it avoided recession during the global crisis: according to the IMF, in 2007–2013 the Polish GDP grew by a total of 19.7%. The competitiveness of the economy is also improving and in the rankings of the Institute for Management Development (IMD) in Lausanne, Poland moved from 52nd place in 1997 to 33rd place in 2013. Due to the predominance of market mechanisms, weak coordination mechanisms, fragmentation of economic interests and of institutions representing employees, Poland is generally considered to be close to the liberal model, which is also confirmed by higher measures of inequality and social exclusion than the EU average.

However, Poland retains important distinctive features, marking out this type of economy from the “pure” liberal variant: a greater role of the government than in Western Europe, anachronistic institutional model, a hybrid of market and non-market coordination in some sectors and in state-owned companies, a significant politicization of the economy and public sphere, clientelism, corruption, large influence of interest groups in some sectors and professions, as well as a preference for informal rules. These features are in many respects close to the model of “Mediterranean capitalism,” including the weakness of public institutions, low innovativeness of companies, a large share of micro-enterprises and the “grey economy,” dysfunctional social policy and a relatively large agricultural sector. In the current crisis, it does not bode well for economic development.

Rival approaches, those analyzing Poland as an example of a “dependent market economy” or conservative versions of the modernization theory, besides economic development also point to such factors as the position of the country in the international division of labor and on the geopolitical scene, the sources of GDP growth, their durability and rules for allocation of the benefits flowing from it. In this interpretation, Poland (like other countries in the region) has returned to the role of a semi-periphery of the world capitalist system, the role played before the introduction of the communist system.

A key aspect of the new variant of capitalism has been the dominance of transnational corporations controlling financial services, major companies, trade and exports; in less than a decade they have become key players in the economic transformation in almost all post- socialist countries of the EU. Also in Poland the economic policy, primarily focused on attracting foreign investors, has introduced a model of imitative development, replicating Western countries. This strategy made it possible to overcome the crisis after the collapse of communism, to enter the path of convergence to the level of Western European development and to join the EU.

However, the positive impact of foreign investors mainly concerned the initial phase of transforming of the economy, creating a competitive market and the internationalizing business. It turned out after a few years that commitment to transformation mostly favored the interests of the corporations, which have become the strongest competitors on the Polish market, controlling 40 percent of the total economic activity of companies. This is evidenced by a high degree of penetration of the domestic market by these companies, sometimes leading to oligopoly in some areas, such as the financial sector and export industries. There are concerns that given the weakness of mechanisms producing accumulation of domestic capital and limited development potential of domestic enterprises, such a situation may petrify the current structure and nature of the Polish economy.

A telling indicator of all this is the declining innovativeness of domestic companies, placing Poland in the rear end among EU countries. The fact that foreign capital is gaining control over the most profitable sectors of the economy means that local companies are reduced to the role of minor suppliers mainly of traditional products and services. (It is no coincidence that in recent years, Poland has the best trade balance in the area of agricultural and food products).

As a result, the “strategy of becoming a pasture for global corporations,” based on the principle “low cost, little supervision,” places Poland in the role of an “inner periphery” of the Union, occupying a subordinate position in the decision and production hierarchy of transnational corporations. Such a model of economic development stimulates lasting change only to a limited extent, because permanent changes must be based on internal growth factors subordinated to domestic economic and social objectives. It also does not favor the creation of high quality jobs or improving the opportunities for young people. These issues were diagnosed in such documents as the report written by advisors to the Prime Minister Donald Tusk and called Poland 2030, signaling the threat of “development drift,” that is that Poland will lose its competitive advantages and its peripheral position in the EU will be petrified.

Small potential for creating strategic resources, such as new knowledge, innovation, competitive domestic companies or growth of social capital, is a product of a model of capitalism that has been exhausting its development capabilities. If the internal driving forces of the Polish economy are not significantly strengthened, it is hard to imagine that it will be able to function more efficiently in the future, especially in a situation where the last major portion of EU funds will expire in 2020, and the inflow of foreign investment has become uncertain. This makes it necessary to strengthen the domestic capital, also through increasing its share in the financial sector and consolidation of domestic business.

The course of the crisis in the eurozone suggests that currently the resources and capabilities, which favor development are most successfully utilized by coordinated economies or those evolving from the coordinated towards the liberal model, which dominate in the EU core. The crisis provides information on the direction of reforms, also in Poland; it shows what is worth noting in the context of introducing solutions complementary to those existing in Western and Northern Europe. If Poland is to become a country advancing from the periphery to the European core, the institutional form of capitalism is a factor of primary importance. The starting point should be increasing the manageability of the system, strengthening public institutions, social partnership and dialogue, improving government effectiveness and regulatory quality, creating strong domestic companies capable of greater financing of development policies and of competing on global markets.