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.


  1. It's strange to see how the rhetoric and policies of Poland and Britain's neoliberals mimic each other. Though not even Cameron has yet invoked Thatcher to ease the passage of his austerity programme! I wonder why ...

  2. Strange thing is that many neo-libs here think that Thatcher is a national hero in the UK. Little do they realise that even the Tories have been doing their best to keep away from her for the best part of 20 yrs.


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