Wednesday, 27 October 2010

And What if the People Don't Want Reform?

Witold Gadomski – who writes for the daily Gazeta Wyborcza - is one of Poland's leading economic commentators and a consistent defender of neo-liberal orthodoxy. Yet, despite his clear ideological convictions, his articles are always worth reading as he is an incisive analyst, who is prepared to tackle complicated and controversial issues head-on. His article in last weekend's Gazeta Wyborcza ('And what if the electorate doesn't want reform?') is a case in point. In this article Gadomski compares the current situation in France and the UK as a means to analyse the policies being pursued by the governments in Poland and Hungary.

His thesis is simple: public finances and debt have spiralled out of control and if governments do not start drastically reducing spending then their countries will soon face economic ruin. This challenge has been taken up by the governments of France and Britain. However, while in France the trade unions have responded by paralysing the country through strikes, demonstrations and blockades, Gadomski notes, rather prematurely, that the response to Cameron's announcement of austerity in the UK has been relatively mooted.

Gadomski concludes that Cameron offers the best example of how to carry through painful economic reforms. He argues that Cameron was clear about his intentions prior to the election and that he then began introducing them at the beginning of his term in office. Gadomski therefore predicts that by the time of the next election, the pain of taking the medicine will have worn off and its positive effects begun to take effect.

There are two obvious errors in this analysis. Firstly is that Cameron's Conservative Party does not govern alone in Britain, but is in a coalition government with the Liberal Democrats. The Tories were unable to win an electoral mandate for their austerity programme and the Liberals did not include such drastic spending cuts in their manifesto. Consequently the Liberal-Democrats have clearly broken from their election pledges on issues such as student fees. Secondly, the assumption that such spending cuts will both bring down public debt and reignite the British economy is highly dubious – as clearly shown in the example of Ireland. Figures have just been released in the UK showing that the higher than expected economic growth of 0.8% in the last quarter mainly came from an increase in construction, spurred by public spending. It is likely that the Tories' policy of rapidly retrenching such spending will depress the recovery.

Gadomski then turns his attention to the situation in Poland and Hungary. They are both governed by right-wing parties, which – in the opinion of Gadomski - have been reluctant to carry through spending cuts. Gadomski describes how the ruling Fidesz party came into government in the wake of the collapse of the Socialist led government, following the outbreak of the financial crisis. Shortly between the ending of the Socialist led government and the election of Fidesz, a non-party administration introduced a series of severe spending cuts. Fidesz won the election both promising to improve public finances and reduce the scale of spending cuts . In Poland, Citizens' Platform (PO) had previously (in 2005) promised a set of extensive liberal reforms, such as introducing a 15% flat tax rate for income tax, business tax and VAT. By the time it won power in 2007, the party had toned down its economic liberalism and even promised to raise public sector wages.

The message of Gadomski's article is that these governments should speed up their efforts to cut public spending. In Hungary the government has recently been elected and therefore Gadomski argues it is in a particularly good political position to do this. However, the Hungarian government has already announced large spending cuts – in order to meet its debt repayments to the IMF (Hungary was the first country to turn to the IMF in the wake of the financial crisis). The government has already introduced a 29-point saving plan that includes cutting and freezing the salaries of public administration workers; cutting sick benefits by 10% and increasing VAT to 25%. Presumably Gadomski would also welcome the government's decision to introduce a flat-income tax rate - although quite how this will help public finances is unclear.

In Poland the situation is different. The next parliamentary elections are in 2011 and liberal commentators such as Gadomski would like PO to speed up its austerity measures now and include a clear programme for reform in its next manifesto. Those in government are reluctant to do this, with the Polish Finance Minister, Jacek Rostowski, quoted in the article as saying: 'what is the sense in carrying out reform if it will just lead to the collapse of the government and our successors will resign from it?' Prior to being in government Rostowski was a clear supporter of speeding up liberal economic reforms. Gadomski bemoans the fact that once in government he has become more concerned with political-economy, than with the pure world of economics. However, once again, it is not the case that the Polish government is not carrying through liberal economic reforms (as noted in this blog). These are just never enough for the likes of Gadomski.

It seems likely that the PO government will follow the Cameron example half-way. He will diverge from the British Conservative Party by not clearly laying out a programme of severe cuts before the election. However, it should be expected that soon after forming a government (if indeed it achieves this) PO will then look to implement its intended reforms rapidly, especially as they have their own man now safely encossed in the Presidential Palace. The left should be aware of this and make its opposition to it a centre-point of its election campaign in 2011 – especially as it is likely that PO will be seeking to form a coalition government with the Democratic Left Alliance (SLD) if it does not achieve an overall majority. SLD leader Grzegorz Napieralski should seriously consider the consequences of such temptations and ponder whether he really wants to end up as a Polish Nick Clegg.

Another element of Gadomski's article is his criticism of the Polish and Hungarian Prime Ministers – Viktor Orban and Donald Tusk – for their attitudes towards foreign capital. He notes how these leaders have begun to build upon dissatisfaction within their societies towards the actions and dominance of foreign private capital in their countries. Particularly disconcerting for Gadomski, is Orban's proposal to introduce a 'crisis tax' on banks, the energy sector, telecommunications and trade, which would hit foreign capital the hardest. Concurrently, Gadomski accuses Tusk of playing games of 'economic patriotism' – through supporting the creation of 'national champions' through proposing to create state conglomerates in some sectors (such as energy and finance) to compete with foreign capital.

The reaction of neo-liberal commentators and lobby-groups to any recommendations limiting the power of foreign capital is revealing. For example, in recent months there has been some discussion in Poland about the bank PKO-BP – in which the state has a majority share – buying the fourth largest bank in Poland BZ WBK, which is owned by the Irish investment group AB. This would be a reverse from what occured in Polish banking throughout the transition, which resulted in over 80% of all banking assets in the country being held by foreign banks. However, even this modest step in the other direction, which would help to consolidate a domestic banking system in Poland, has been fiercely denounced by the usual sources. The situation in Hungary is even more pronounced – where foreign capital was largely given a green light in the privatisation process. The country first suffered a financial crisis in 1998, after a flight of capital out of the country revealed the vulnerability of Hungary in the global economy. With Hungary severely hit by the global financial crisis in 2008 (suffering its third economic crisis in 20 years), hostility has grown towards the role of foreign capital in the region.

There is a danger that politicians such as Orban will pursue populist nationalist policies in order to divert attention away from the real causes and effects of the economic crisis. It is certainly not the case that domestic captial is always better than foreign capital - as shown during the recent catastrophic leekage of toxic sludge from an aluminium plant, which was the result of malpractices carried out by a privatised company with domestic owners. However, what current events in Hungary and Poland are showing is that the previous course of capitalist development in Central-Eastern Europe has run its course. This was built upon creating the most favourable conditions for private foreign capital in the region. However, the global financial crisis has meant that there is far less foreign private capital coming into CEE - with FDI falling by a half in Poland alone between 2007 and 2009. The countries in CEE that were most severely hit by the financial crisis tended to be small, financialised economies that were most reliant upon foreign capital (e.g the Baltic States and Hungary). Therefore other sources of capital accumulation will have to be sought. While private FDI has partly been replaced by EU money (which in contrast to private capital has actually been used to help build up the infrastructures of these countries) there is also pressure in these countries for their own domestic capital base to be developed.

Gadomski worries that governments in Hungary and Poland are unwilling to take the 'difficult' decisions regarding austerity measures. He also frets that these administrations are introducing policies that will act against foreign capital in the region. He is concerned that the objective laws of economics - that work so well on paper - are being hampered by the distractions of real-politik and the pressures of electorates. Without stating it, Gadomski is repeating the long-held concern, of many liberals and conservatives alike, that the social-levelling concerns of populations, expressed in the ballot box, undermine the rational workings of the economy. Democracy really can be such a pest sometimes.

Monday, 25 October 2010

The Scandal of Private Pensions

Here's a game you could play. Find a member of Poland's urban middle class, engage him/her in conversation and then mention the word ZUS (an acronym for Poland's social insurance system – Zakład Ubezpieczeń Społecznych). The reaction will almost always be the same: a tirade of expletives and a bemoaning of how they have to pay X amount every month and yet get nothing in return – perhaps accompanied by some vague theories about the system's inefficiency and then a joke about the people who work there.

While you have this person's ear you could then extend the game. This time utter the acronym OFE (which stands for Poland's private pension schemes – Otwarty Fundusz Emerytalny). This time the reaction is less certain. A couple of years ago you would almost certainly have received some positive and optimistic assessments of these schemes. After all these were launched in 1999, by the then Finance Minister Leszek Balcerowicz, amongst great fanfare. Advertisements appeared showing healthy looking pensioners on exotic holidays wearing Hawaiian shirts. The intended message was that we were breaking from the inefficient state system of the past and allowing people's funds to be invested in a growing stock market. The future was bright, the future was private pensions. Nowadays things do not look so rosy.

Earlier this year the reality of the private pension system was revealed – as the first recipients of these private pensions came of age. However, instead of booking their foreign holidays, these new pensioners faced up to the reality of living their retirement in financial hardship. The first OFE payments to these new pensioners equalled just ZL23 a month! Now of course we would expect these pensions to be lower than those in the future as they had only been paying for around 10 years. But 23 zloty!!! This news has been accompanied by a growing realisation that these private pensions are in-fact elaborate schemes of using tax-payers and public money to swell the bank-accounts of private investors. Let's rewind a little and remind ourselves of how this system came about.

The OFE pensions' system was created during the term of the right-wing coalition government led by Jerzy Buzek between 1997 and 2001. Buzek now spends his time employed as head of the European Parliament and advising Europeans that they should work longer and harder. His government was marked for introducing a series of market reforms in the public sector and speeding up the privatisation of the Polish economy. This resulted in a slump in economic growth and unemployment virtually doubling to nearly 20%. He was rewarded not just with electoral defeat but by his political grouping being removed completely from parliament and then disappearing all-together.

One of his major reforms was to introduce a so-called 'second-pillar' of the national pension system. This in effect meant creating a private pension fund into which taxpayers are compelled to pay into and whose funds are invested on the stock-market – thus ensuring growing pensions for all (the hen really would lay golden eggs.) Now here's the puzzle. Perhaps it would be a good idea to invest part of the state pension money in the stock-market in an attempt to valorise the pensions. This is of course a risky business – but some limited and safeguarded investments could be worth doing. Surely however the government could do this themselves – even paying some bright young things to advise them and oversee these investments. No. What we needed was to pass these funds over to private pension companies who we would then pay large sums in order to do this for us.

In 2009 it is estimated that the private pension companies in Poland made a clear profit of around $766m, from an investment of around $3bn (i.e. with a profit rate of 25%). Nice work if you can get it. Furthermore ZUS has actually paid more than ZL140m of its own money into OFE, since the funds were create. In the meantime poor ZUS has had to continue paying its usual 100% pension payments but has been starved of funds that are being paid into these private pension funds. This has led to ZUS having to borrow more money to service these debts and thus sinking further into debt. The sting in the tale is that ZUS has often turned to these private pension companies to borrow money from.

Therefore Poland's growing public debt is being increased partly due to the creation of these private pension funds. During the eleven years since the formation of OFE, Polish public debt has risen by around 13% of GDP. Prof. Leokadia Oreziak estimates that the pension system built around OFE has contributed to public debt growing by around 2% of GDP annually. This situation has not only been noticed by critics of the system but also by some in the government. This summer the Finance Minister Jacek Rostowski and Minister of Labour Jolanta Fedak proposed that part of the OFE payments be taken from OFE and given back to ZUS. Fedak suggested that individuals should be allowed to resign from OFE and pay fully into ZUS.

Returning from holiday PM Donald Tusk took on the issue, admitting that the system did not benefit pensioners. However, the lobby group around these institutions is strong in Poland and it has a large influence within the government. The government ended up by deciding to create two forms of investment funds through OFE. One would be for those approaching pension age and would involve more conservative investments; whilst the other would be for younger people which would take more risky investments. There has also been a new regulation introduced stating that the fees charged by the private pension companies on payments cannot exceed 2.1% and 2.8% respectively (currently they equal 3.5%). However, a new extra fee of 2% has been added, which has been termed a 'solidarity charge' (sic).

The result of these new rules (pushed by the government's 'social liberal' Michal Boni) is that pensions are even more reliant upon the financial markets. According to present estimates pensions could end up half the worth of those existent when the system was created over a decade ago. Even the most optimistic scenarios show that pensions will be lower than those given previously. If there were to be another financial crisis in the future then pensions in Poland could be reduced to a level where even the most basic needs of pensioners cannot be met.

Pressure is now coming from the lobby groups and the media (loudest of course from Balcerowicz who set up the OFE) for the government to act and deal with Poland's growing public debt. The proposals to cut public spending and raise VAT are being accompanied by louder calls to increase the retirement age. Presently French society is in revolt over Sarkozy's proposal to raise the retirement age to 62. In Poland some are calling for it to go up to 67 or 68. All this in a nation where the average life-expectancy is 71.3! I guess that Hawaiian shirt won't be necessary after all.


'Boni: Emerytury jeszcze bardziej uzaleznic od kaprysow rynkun'

Dariusz Zalega 'OFE-kracja zadłuża Polskę' , Le Monde Diplomatique Edycja Polska October 2010-10-25

'Emerytalne mydlenie oczu', TVP

Wednesday, 20 October 2010

Politics of Hate

Polish politics has entered a dangerous spiral of aggression and conflict. Yesterday afternoon a man entered the offices of the Law and Justice Party (PiS) in the city of Łódż and shot dead one man (assistant to the MEP Janusz Wojciechowski) and seriously injured another (assistant to the MP Jarosław Jagiello). After being arrested the attacker shouted that he wanted to kill PiS leader Jarosław Kaczyński and that he hated PiS.

Now this all could be the actions of an insane attacker and will perhaps be remembered as a tragic but isolated incident - let's hope so. However, whatever the mental state of the perpetuator, this crime seems to be the culmination of a worrying trend in Polish politics behind which deep social tensions and divisions lie.

Within less than an hour of the attack PiS leader Jaroslaw Kaczyński had already gone on the offensive. He stated that the attack was “the result of the great campaign of hatred against his party pursued by the ruling party Civic Platform (PO) and its leader, Prime Minister Donald Tusk" Meanwhile PM Donald Tusk called for calm, stating that 'the most important thing is joint actions of all Poles and different political groups towards extinguishing the atmosphere of conflict and anger'

It is certainly the utmost political cynicism, and unfortunately true to form, for Kaczyński to use such a tragic incident to build his own political capital. It is also breathtakingly hypocritical for such a politician to deride others for using the language of political aggression. After all this is a political leader who divided society and attacked his political opponents whilst in power - often using the institutions of the state (including those he created) against his political enemies. It was whilst Kaczyński was in power that the SLD MP Barbara Blida died, (ostensibly by suicide but in very unclear circumstances) whilst being visited by the Internal Security Agency (ABW). I could go on and those who remember the period of the PiS government will recall the atmosphere of political conflict and the bending of the standards of democratic practice that existed during this time. All this however does not tell the whole story.

Firstly, PO was partly responsible and have certainly been the beneficiaries of the rise of PiS and the political move to the right in Poland. One of the PiS government's great projects was its failed attempt to create a new constitution and build a new Fourth Republic. This project was actually first mooted by politicians from PO and Tusk built up PO as a party fighting against the 'corrupt' Third Republic. It should also be remembered that prior to the 2005 parliamentary elections it was widely predicted that PO would form a government with PiS and that their two-thirds majority would allow the coalition government to drive through their constitutional reforms. All of this was derailed when PiS unexpectedly emerged as the largest party in these elections and then built a coalition government with the nationalist and agrarian populist parties. The major political divide that has dominated politics ever since was formed at this moment.
Yesterday Kaczyński claimed that the period of political aggression was started when Tusk called the supporters of PiS 'Mohair Berets' (Moherowe Berety) - that refers to the hats which elderly women at Church are supposed to favour. Now once again Kaczyński is wildly exaggerating and re-writing history by forgetting his own dominant role in building political conflict and aggression in Poland. However, this turn of phrase used by Tusk was one part of a verbal political war not just between political parties but amongst different social layers and generations. Such phrases have become commonly used by those on either side to deride the other and create simplified characateurs of different social groups.

In order to build their political position as the dominant party in Polish politics PO have had to repeat and exaggerate the threat of PiS and demonise its leaders and supporters. PO politicians have painted PiS as being a quasi-fascist party that endangers democracy and that only Tusk and his team are preventing the country from falling into the abyss. On the other side PiS now taint PO as a party and government that threatens Poland's very existence as an independent nation. The political differences between the two parties - on matters of real substance - are in reality minimal. Rather than offer a clear political alternative to PiS and the conservative right PO can only use its marketing machine to show PiS as being the enemies of reason and itself as the representatives of rationality and progress.

Behind this lie deep social divisions and frustrations. I remember watching a political discussion programme shortly before the Presidential elections on PO's favourite private TV station TVN. One of the guests was a typical representative of Poland's liberal elite. She talked coherently and passionately about wanting to live in a 'normal' country and seemed to yearn for life in a stable western liberal democracy (scarce as they are to find nowadays.) One comment from her sticks in my mind. When discussing PiS and Kaczyński she blurted out that she wishes they would just go away and disappear. It was as if her life would be so much more bearable if these annoyances simply ceased to exist. The problem is however that the issue of Kaczyński and PiS do not concern the thoughts of extreme individuals or extroverts on the margins. Rather they express - in a very confused and often regressive form - the social reality of marginalisation that millions find themselves in today.

Of course this woman and her friends may be able to comfort themselves by increasingly pivatising their lives, living within gated communities, and existing in a cultural and social ghetto of privilege (of course with a progressive liberal tinge.) But beyond these secure walls lives a wider society. With little or no political choice on offer that can actually change the lives of the majority, then cultural conflict has become the order of the day. The demonstrations outside the presidential palace grew louder and more aggressive and their counter-demonstrators more vocal and direct. The political slanging matches between the two political 'sides' - talking about things that seem so removed from one's everyday life that it is almost surreal - have become deafening to the point that they can no longer be listened to. And now this internal phoney war has its first victim. Alongside the victims of the accident in Smoleńsk some new martyrs have been created. Let's hope they are the last.

Friday, 15 October 2010

Austerity for the Majority

The government has drawn up an emergency financial plan, which could mean further hardships for the vast majority of Polish society. A clause exists within the Polish constitution that automatically triggers austerity measures if public debt crosses 55% of GDP – these are then increased if it breaches 60%. The government predicts that public debt will peak at more than 54% in 2012 and then begin to decline thereafter. However, with such a small margin of error, the government has drawn up a contingency plan if public debt does in fact exceed its self-imposed threshold.

There is a serious argument in favour of reforming this law. At the moment public investment is driving the economy – boosted by the inflow of funds from the EU – and it is imperative that this is both continued and public services supported. However, Poland is a country on the periphery of the world economy and one which is dominated by international capital. The international financial markets are able to severely punish it – and drive up the cost of government bonds – if the Polish government is seen to be breaking from its neo-liberal orthodoxy. So if, for the sake of argument, we were to accept that the government cannot reform its constitution (which in-fact could be addressed if the government and opposition showed the political will) the major question at the moment is who will foot the bill if public debt crosses the 55% threshold.

Up until now the government has made it clear as to who will pay to try and prevent this from happening: low and medium wage earners. The government’s decision to raise VAT and cut public spending will negatively affect the majority of society. An increase in VAT is felt the most by the poor – as the vast majority of their income is devoted to current consumption. Reducing public and social spending will also lower the consumption level of large sections of society - not least the public sector workers whose wages are being frozen. The government is also attempting to speed up privatisation in order to boost its coffers. This is an extremely short-sighted policy that involves selling off often profitable and strategically important companies for short-term economic gain.

The government’s new financial plan now makes it clear who will pay if public debt crosses its 55% limit. If this occurs then the government has announced that it will abolish, for three years, the popular tax reliefs for the Internet and children. The latter tax relief was initially developed as part of the government’s pro-family policy – designed to encourage couples to have more children. Poland has one of the lowest birth-rates in Europe and – alongside high emigration and low immigration – is leading to a shrinking and ageing population. The government will also abolish the tax breaks received by independently working artists, journalists and academics. Furthermore, the government plans to sharply decrease subsidies financing the salaries of disabled workers. Finally, it has announced that it will further increase VAT (above the already planned rise) by a further 1% for two consecutive years. Ouch!

All of this is not just grossly unfair but also makes no objective economic sense. By increasing the rate of tax for ordinary citizens demand will be cut and economic growth slowed. Below I publish a translated version of an article written by the publicist Piotr Szumlewicz that explains the unfairness of the government’s tax policies and at how a small group of high earners have disproportionately benefited from them. It also shows how businesses pay a lower rate of tax than employees. The absurdity of this situation is highlighted when we consider that private firms are not investing in the economy at the moment and that public investment is keeping it afloat. One point that should also be borne in mind is that the personal income tax reforms, enacted by the present PO government, are laws that were passed during the term of the PiS government. This shows how despite their efforts at ideological obscurification – when it comes to economic policy not much separates these two right-wing conservative parties.

(Piotr Szumlewicz)

The Ministry of Finance has presented figures showing the amount that individuals paid into last year’s government budget. The Ministry’s report did not cause any great controversy, despite it including some shocking data. It reveals that although the present and past governments have cut income taxes, the real tax burden for the majority of society has in-fact increased.

In 2009 the government replaced the three personal income tax bands of 19%, 30% and 40% with two new tax bands – 18% and 32%. From last year those whose income exceeds ZŁ 85,528 (more than ZŁ7,000 per month) now pay 32% tax. In the previous system those crossing this level would have paid 40%. In other words the government has significantly reduced the tax rate for two of the highest earning sections of society and only minimally cut it (barely by 1%) for the remaining tax payers. Last year as many as 98.41% of taxpayers (24.02m people) were included in the 18% tax band and just 1.59% (387,000 people) in the 32% band. In 2008 those in the highest two tax bands made up 7.85% of tax payers (1.40% and 6.45% respectively.) There has therefore been a clear move away from progressive taxation and personal income tax in Poland is now virtually linear.

In 2008 the three different tax groups – after taking into account tax reliefs and exemptions – paid 13.85%, 18.71% and 29.01% of all effective taxation. A year later people from the first group (which previously encompassed groups one and two) paid an average of 12.93% and the second (previously within the third group) paid 22.75%. This means that the tax burden for 1.40% of taxpayers, who are the highest earners, fell by 6.37% and for 6.45% of taxpayers, who two years ago were included in the second tax band, declined by 4.78%. At the same time 92.15% of taxpayers – who presently pay a tax-rate of 18% - pay on average 0.08% more!

The Polish Statistical Agency (GUS) has also published figures showing the level of tax paid by different types of taxpayers according to their type of work. It occurs, that workers pay higher taxes in Poland than employers do. The real taxation rate for someone who earns a salary solely from paid work equaled 15.13%; whilst those who gain their income through owning a non-agricultural business pay on average 14.3% tax. Furthermore, pensioners pay only slightly less than business owners – 13.8%.

In 2009 personal income tax brought Zł41.5bn into the government’s budget – which is Zł5.5bn less than a year earlier. This is a similar amount to that raised by the increase in VAT planned for next year. This particularly hits poor people, for whom current consumption takes up the majority of their income.

The government has decided that the burden of the budget deficit, caused by cutting taxes for the wealthiest sections of society, is to be borne by the whole of society. It should also be taken into consideration that the amount of income that was taxed last year was Zł40bn higher than a year earlier. If last year’s income had stayed at the same level as in 2008, then the loss for the budget would have been even greater.

Experts predict that the budget’s income from personal taxation this year will be similar to that in 2009. In other words the cost to the budget of reducing taxes for the richest few percent of Poles will be more than Zł16bn over the next 3 years. The effects of giving this present to the highest salary earners will be painfully felt by the vast majority of society over the next year.

Saturday, 9 October 2010

A New Challenge for the Left

Last weekend a new political movement was born in Poland – or was it? The extrovert millionaire businessman and Citizens' Platform (PO) MP – Janusz Palikot - organised a gathering of supporters in the Palace of Culture in Warsaw. Around three thousand people attended from around the country – an impressive number in a nation where currently political apathy is the norm. Palikot has announced that he is resigning from PO and forming a political movement, with the aim of creating a new political party. The movement is based upon a series of liberal-cultural demands such as a full-separation of the Church and State, sexual rights and liberalisation of the laws on abortion and in-vitro.

The movement around Palikot potentially poses a challenge both to PO and the Democratic Left Alliance (SLD). As Palikot is splitting from PO (and could take a number of other MPs with him) then he could potentially weaken this party and win the support of its more liberal wing. However, the biggest threat is potentially to the SLD, who – under the leadership of Grzegorz Napieralski – won 14% of the vote at the recent Presidential elections and has been seen as the main defender of secularism and cultural liberalism in the country. Palikot is hoping to build upon the dissatisfaction within sections of society – particularly the young – towards the growing influence of the Church in social life, which came to a head during the conflict around the cross outside the Presidential Palace.

A recent interview with the political scientist Rafał Chwedoruk raises some interesting issues about the current situation facing the left in Poland and the challenge that Palikot's movement poses. I will discuss some of the points raised by him below.

Firstly, Chwedoruk believes that the movement around Palikot was created with the agreement of PO leader and PM Donald Tusk. This is as a reaction to the movement of sections of the PO electorate to the left – which PO are having difficulty containing. The creation of a new party around Palikot could therefore be a way of containing this electorate, within a liberal-centrist framework, and preventing it from being taken by the left. Without knowing the ins and outs of the discussions between Palikot and Tusk or advancing unsubstantiated conspiracy theories – it does seem logical that PO would welcome a liberal-centre party challenging the SLD for the liberal-cultural vote. PO is predominantly a conservative party and if it were to move to the left on such issues it would undoubtedly lose the support of a larger section of its political base. However, there have been many attempts to build liberal-centre parties in Poland during the past 20 years all which have ended in failure (ROAD, UD, UW, PD, LiD – I'm sure I have missed some out). The combination of neo-liberal economics and cultural liberalism simply reduces the support of the latter to a minority of society. On past history Palikot has shown himself to be a staunch economic liberal. Whether he will take an opportunistic turn to the left on socio-economic issues is doubtful but not out of the question.

Chwedoruk also discusses the relative success of Napieralski at the Presidential elections and at how the left managed to widen its support beyond its traditional core electorate. Therefore, in these elections, Napieralski was supported not just by the older left-voters who identify themselves with the Communist period and see the SLD as a 'successor party' from this time. Rather, one-fifth of the SLD vote at the Presidential elections came from young people and furthermore (and perhaps more importantly) the SLD managed to win a significant vote amongst middle-aged voters.

Chwedoruk compares the electoral base of social democratic parties in Northern Western Europe with that of social democratic parties in Central-Eastern Europe. In the former, the social democratic parties have a long history and their base was built up during industrialisation and remains concentrated within large urban areas. However, in CEE, the situation is different. For example, in the Czech Republic and Slovakia, support for the relatively large left parties is concentrated within the provinces – the countryside and small/medium cities. Chwedoruk proposes that the SLD looks to builds its support amongst those who have fallen a 'step-behind' during the transition. This would include appealing to that part of the electorate in the cities – including well-educated and young/middle-aged voters - who have struggled to get a decent credit for a flat, find a stable well-paid job, etc. Anyone living in a city such as Warsaw will recognise this social group and also see how it is growing. Potentially such an approach cuts through the cultural divide that has dominated Polish politics and supersedes the simplistic 'Polska A/Polska B' schism that is so often talked about. Chwedoruk suggests that the SLD should therefore prioritise socio-economic issues and promote the development of the public sector and welfare-state as being in the material interest of these social groups. This idea of expanding the left's base through providing a range of social groups with decent public services and welfare is a viable one. However, I would argue, the real dilemma that the left needs to address is how it is going to fund these services and furthermore how it will expand stable employment and help raise wages.

Chwedoruk argues that although the SLD should retain its culturally liberal programme and support the de-clericalisation of society and politics, this should not be built around launching a new cultural revolution (as seems the ostensible wish of Palikot.) Rather he suggests that the SLD should direct itself towards the 'average person' and on questions of anti-clericalism focus on matters such as the participation of the Church in public life and its financing – rather than on the meaning of religion. Poland could not repeat the example of Spain – where the Church historically became associated with the Franco regime and therefore could be politically challenged by the left. In contrast, in Poland, the Church still retains some authority after the role it played in the opposition movement during Communism.

Chwedoruk asserts that despite the legitimate criticisms of the SLD from the left, it remains the only real left-wing party in Poland; and that if it were to disappear then the left would be pushed further into the margins of politics for the next couple of decades. However, his major criticism of Napieralski is that he has not managed to use his position of strength to gain full control of the party and open it up to the wider left. This is evident in Warsaw, for example, where in the forthcoming local elections former SLD leader Wojciech Olejniczak will stand for President. Olejniczak is a liberal in the full-sense of the term and would be better suited in a party created by Palikot than one claiming to be left. Chwedoruk argues that the SLD should open itself up to those to its left and seek to open up a dialogue with the Alter-Globalisation movement.

There is much to be admired in the proposal that the SLD should open itself up to new forces on the left. However, this would have to encompass a greater number of groups and individuals than those found within the so-called Alter-Globalisation movement. Also Chwedoruk talks about the SLD repeating the example of the German PDS, which managed to grow out of its post-communist nostalgic ghetto and help build a broad party of the left in Germany. The difference here, however, is that the PDS had a larger 'nostalgic' electoral base in eastern Germany and could also align with a strong left-social democratic current in western Germany. The SLD has neither of these advantages. As Chwedoruk points out the SLD lost much of its status amongst the left during the term of its last government (2001-2005) when it was ridden with corruption scandals, implemented neo-liberal economic policies and became regarded as a party of big-business. The SLD must seek a way of opening itself up to a range of individuals and groups who associate themselves with the left but do not see the SLD as being a party that represents them. After-all, I have lost count of the number of times that somenone has complained that 'there is no left in Poland'. There is a need for a democratisation of the party, which would include challenging part of the SLD's apartchiks and the vested interests that have been built within it. If Napieralski and the SLD are serious about building a broad and democratic left party – within which a range of currents and ideas can cooperate and compete – then this is what needs to be done. Perhaps it is also time for part of the left outside of the SLD to consider how it can help facilitate or speed up such a process.

Saturday, 2 October 2010

The Delusions of Poland's Thatcherites


During the 1980s the then leader of the Greater London Council - Ken Livingstone - placed a large electronic billboard, displaying London's rising unemployment figures, on the side of County Hall. This could be seen from Parliament across the Thames and was a constant reminder of the shame of Britain's soaring unemployment rate during the years of Thatcher's government. Last week a coalition of Margaret Thatcher's admirers hung a similar electronic board in the centre of Warsaw - yet this one displays Poland's growing public debt. The message is clear: the biggest threat to the Polish economy is its goverment debt and if it is not quickly controlled then economic catastrophe awaits.

There is currently a curious rivalry amongst Poland's neo-liberals. A previously united group are now divided by those - such as the original architect of the Shock-therapy reforms Leszek Balcerowicz - who want the implementation of immediate radical spending cuts; and those - such as the present Finance Minsiter Jacek Rostowski - who prefer to take a more gradual approach. These groups are divided by power, with the latter having to balance the realities of wanting to implement unpopular reforms and be re-elected at next year's parliamentary elections. The former are simply concerned with using their wealth and influence to push the public debate in the direction they wish. Both are also vying to represent themselves as the true heirs to their hero who they quaintly insist on referring to as the 'Iron Lady'.

Leszek Balcerowicz is no longer able to win political power in democratic elections - and it is little wonder why. After introducing the shock-therapy reforms as Finance Minister in January 1990, GDP fell by 24% and unemployment rose by 15% within two years. When he once again assumed the post of Finance Minister in 1997, GDP growth fell from over 6% to around 1% and unemployment rose from about 10% to 18%, during the term of the government he served. Balcerowicz now spends his time running a neo-liberal think tank (Fundacja Forum Obywatelskiego Rozwoju - FOR) advising those in government about how to repeat his successes. His advice is always the same: cut public spending, reduce taxes, speed up privatisation.

As Poland's public debt crosses 50% of GDP and its budget deficit 7% Balcerowicz and friends have scented that this is the time to go on the offensive. The ruling Citizens' Platform (PO) are self-declared supporters of spending cuts and privatisation; and after the Smoleńsk tragedy the conditions for a new shock-doctrine are ripe. Balcerowicz has therefore set out a series of policies that he believes the government should immediately introduce. These include:

- Radically reducing subsidies for funerals

- Halting salary rises for teachers

- Liquidating subsidies for mines

- Abolishing subsidies for new born children

- Reducing unemployment benefit

- Raising the retirement age and making it equal for men and women

- Withdrawing retirment privilleges for uniformed workers

- Not increasing maternity leave

- Speeding up privatisation

- Instructing government officials to stand on street corners and steal school-childrens' pocket money (ok - so I made this last one up!)

Balcerowicz now lives in a bubble of such ideological certainty and rigidity that he can claim - whilst keeping a straight face - that the global economic crisis was caused by the public and not the private sector. Ignoring the huge government bailouts of the financial sector and the growth of ecnomies such as China, Balcerowicz argues that the economic crisis has hit those countries the hardest where political power is unrestricted and the private sector and free-market repressed! (stop sniggering at the back)

Despite their current rivalry Balcerowicz and the present Finance Minister Rostowski are old friends. Rostowski - himself born and bought up in the UK - was Balcerowicz's adviser from 1989-1991 and led the Macroeconomic Policy Council in the Ministry of Finance from 1997-2001. Yet, the two now have a stormy relationsip, with Rostowski's former mentor urging him to immediately introduce his package of radical reforms.

One thing Rostowski seems to have learnt, however, is that following the advice of Balcerowicz will inevitably lead to electoral defeat. He argues that although Poland needs vigorous reform - this should be carried out step-by-step which would better ensure its success. He claims that his reforms are the true bearers of Thatcher's legacy. He states that PO's recent decision to raise VAT is similar to Thatcher's policy in the early 1980s and that in order for the Tories to stabilise public finances they had to both cut public spending and raise taxes (although obviously not for high earners). Rostowski summarises his approach thus: 'Reforms do not need to be introduced in one revolutionary package but can be brought in gradually as Thatcher did (e.g. by five times reforming the trade union laws.)'

The present disagreements between Poland's neo-liberals are not therefore about matters of substance but rather tactical arguments about when and how to introduce reforms. The present government has introduced a series of spending cuts (alongside increasing VAT) - including freezing the wages of public sector employees, reducing funeral subsidies and cutting money for the labour fund. It also attempted to introduce a series of reforms (such as 'commericalising' the health service) which were vetoed by the late President Lech Kaczyński. The government has now calculated that its priority is to win next years parliamentary elections so that (without the threat of a presidential veto) it could introduce its reform programme.

The real issue at hand here is not about ideological purity but which economic policy is best for the country. One issue concerns whether - during a time when the Polish economy is being driven by public investment- the most pressing issue is to reduce public debt that is still low relative to the European average. However, leaving aside this issue, the question is raised as to what is the best way to reduce public debt. It is to be expected that Thatcher's admirers in Poland would be able to draw some historical inspiration from her time in office.

We can find such hope in a recent article written by one of Balcerowicz's young prodigees from FOR. The article contrasts the budget policies of Thatcher's government in the UK with those of the present PO administration in Poland. The author praises Thatcher for carrying out reforms such as cutting social benefits and public sector employment, thus leading to a reduction in public and social spending as a percentage of GDP. The article finishes by noting that after introducing a series of far-reaching reforms during her first term in office, Thatcher was actually able to increase her share of the vote at the 1983 parliamentary elections. The core argument of the text is that governments can both introduce large spending cuts and remain popular.

It is extremely quesionable how useful it is to compare one election in the UK, that happened nearly 30 years ago, with the current political situation in Poland. One must just assume that the author of the text had factored in issues such as the Falklands War and the 1982 split in the Labour Party into his overall analysis. However, what the author does not address at all is whether the policies of Thatcher were able to bring down the UK government's debt or not - which, we are being consistently told, should be the government's central concern at the moment. It is little surprise that this is not included in the article as it would not be favourable for the Thatcherites' argument.

It is certainly true that Thatcher managed to reduce government spending, with total managed expenditure (TME) reducing by 5.9% (£83bn) during the first ten years in government. However, the £8.75bn defict, which Thatcher had inherited in 1979, had grown to an average of £9,00bn over the next five years, with total debt rising from £98bn to £157bn during this period. Furthermore this all occurred during a time when government finances were boosted by soaring North Sea oil revenues - which equalled 3.2% of GDP in 1984/85. Thatcher's policies resulted in a huge rise in unemployment - which placed a further burden on the social spending. We can see a similar situation in Europe at the moment, where budget deficits have tended to rise fastest in those countries that have carried out the most severe spending cuts. After the events of the past couple of years - not least the past week - it is little surprise that PM Donald Tusk no longer talks about repeating the Irish economic 'miracle'.

The policies of cuts in public and social spending by Poland's Thatcherites will not help Poland's public finances but are more likely to slow economic growth and thus increase the government's debt. Despite their facade of being in the general interest they are actually designed to further shift wealth from one section of society to another. Not a word is heard from these economists about reducing defense spending or withrawing subsidies for the Church. And their silence over reversing the regressive taxation policies introduced by the Law and Justice Party government is deafening. One thing is certainly clear: there is no lesson to be learnt from Margaret Thatcher in contemporary Poland.