Tuesday, 22 March 2011

A New Shock-Doctrine for Education

It seems that Prof. Balcerowicz has to have a say on everything nowadays. The former Vice Prime Minister - who no longer has any possibility of being re-elected - has been haranguing the government of late for not cutting public spending quickly enough. However, if the present government has learnt one thing it is that repeating the experience of the government that Balcerowicz was a part of is the most sure-fire way to lose office.

And so last night we had to endure a painful 45 minutes of Balcerowicz debating with his former prodigy - and present Finance Minister - Jacek Rostowski about the pension reforms. Yet his public criticisms of the government and advice for further reform have not ended there. One of his favoured topics recently has been education. He has become so vocal in airing his ideas on this subject that the national teachers trade union (ZNP) has published an open reply to his criticisms.

Balcerowicz has stated that the education system is 'rotten' and that it is therefore ‘irresponsible’ of the government to believe that it could be improved through pumping more money into it. The ZNP go to great length to show how this is not just offensive but also factually wrong. We can therefore read:

Poland has been included in the small group of countries where the level of knowledge and skills has significantly increased in recent years. This is confirmed through the results of the renowned research carried out by PISA (The Programme for International Student Assessment), which is run by the OECD. In all the categories covered by the PISA research Poland is situated in the top 11 EU countries – 5th place for reading, 7th in the natural sciences and 11th for mathematics. In February last year, in the presence of PM Donald Tusk, Andreas Schleicher - Head of the Indicators and Analysis Division (Directorate for Education) of the OECD - explained that they had taken the decision to present its research in Warsaw due to the positive results achieved by Polish schools between 2000 and 2009. He said ‘After the second edition of the research we were astounded – looking at the Polish results – at how quickly the education reforms had improved Polish pupils for the better. Successive reports show that this is getting better and better.’

Balcerowicz has targetted his fire at one of education's most costly areas - teachers. He believes - inevitably - that teachers are paid too much and that they work too little. He has therefore opposed the government's decision to raise teachers' salaries and has added his own two main proposals:

1. Increasing teachers' lesson load to the level of that in Finland (from 18 to 25 hours a week)

2. Introducing a new system of incentives for the professional development of teachers.

The ZNP show how they have continually supported improving the training of teachers and at how

successive Education and Science Ministers have not been interested in taking the necessary legal steps in order to improve the situation and reform the training of teachers in order that they are orientated to transferring knowledge and not to providing encyclopaedic information.

This of course includes the government of which Balcerowicz was a part himself.

The ZNP also ask why it is that Balcerowicz has decided to choose the amount of teaching hours as an indicator for comparing teaching in Poland and Finland:

Why not look to the Finish level of salaries and system of supporting teachers, the level of education funding, the standard of equipping class rooms, its system of teacher training or at how there are 10 candidates for one place on pedagogical studies due to it being a highly paid profession?

They show how the reality of raising teaching hours like this would lead to around 1/4 (150,000) of all teachers losing their jobs in Poland. Teachers would no longer be able to take extra work to top up their low salaries and education standards would suffer as an average week for a teacher in Poland would rise from 40 to 50 hours. If teaching hours were to be raised then salaries would have to go up simultaneously as well as an increase in training, resources and working conditions.

The ZNP further wonder whether Balcerowicz is seeking to use the current debate on public finances to promote a new wave of liberal reforms based on the concept of reducing labour costs. The economic crisis is therefore being used as a means to argue that there is no alternative to such reforms and that the original architect of the shock-therapy reforms is now putting forward a new 'shock-doctrine' for education.

The idea that salaries are too high when the most qualified teacher - even after recent salary rises - earns just 2,700pln a month certainly makes no sense. Unless of course that is you are Professor Leszek Balcerowicz.

Sunday, 20 March 2011

World Bank sponsored privatised pension pillar crumbling in Poland

In recent months one of the major areas of political debate has concerned the government's reform of the private pension system. This has brought up a range of other issues including public finances, public debt and privatisation. It has also created new divisions within the previously united liberal camp. A public televised debate between Leszek Balcerowicz and the present Finance Minister Jacek Rostowski is planned for this week.

Below I reproduce my article on this topic that was published by CEE Bankwatch. This is an NGO that monitors the activities of the international financial institutions which operate in central and eastern Europe, and proposes constructive alternatives to their policies and projects in the region. Take a look at their site - it has some interesting and useful commentary and analysis.

When Leszek Balcerowicz cries ‘No Pasaran’ you know that something is afoot. Yet this is precisely what the architect of the post-1989 shock-therapy reforms and the privatisation of the Polish pension system has recently been declaring in the face of the Polish government’s attempt to partially reform the country’s pensions.

The issue of how to provide for those in their old age has become a central issue for governments around the world. In the wake of the global financial crisis, many European governments have responded by introducing a wave of austerity measures, including attempts to raise the age of retirement. However, the crisis has also revealed how the privatisation of the pensions’ systems in some central and eastern European countries has in fact increased the fiscal burden on governments, whilst simultaneously decreasing the income that retirees will receive.

The blueprint for the private pension system evolved in Latin America, more precisely under the repressive dictatorship of Augusto Pinochet in Chile – the favoured administration of the Chicago Boys and the New Right. However, due to the unpopularity of the Pinochet regime, it was not until the mid-1990s that other countries began to emulate this model, as neoliberal governments were established in a number of Latin American countries and the World Bank began advocating a private pension scheme.

In 1994 the World Bank published a key report – ‘Averting the Old Age Crisis’ – that supported the establishment of a three-pillar pension system. Although this report stated that this could take a number of forms, the World Bank began to openly espouse pension reform based upon the Chilean model. The three pillars of this pension model are a publicly managed fund, a mandatory individual private fund and a voluntary private fund.

The advocates of this reform assumed that the rates of return in these individual private funds would be higher than in the public system and that it would provide an important freedom of choice to the individual. They also believed – following their ideological contours – that it would deliver a series of other benefits to the economy, such as increasing labour market incentives and reducing administration costs. Therefore, individuals would work later into life, as the more they pay into their own funds the more they would eventually reap. By 2002, ten countries had either partially or totally privatised their public pension system. In central and eastern Europe, where neoliberalism continued to exert significant influence, a number of countries – the Baltic States, Bulgaria, Hungary, Poland and Slovakia – followed suit.

Mass unemployment has been a feature of Polish capitalism, the jobless rate growing to over 14 percent by 1992 and only briefly dipping into single figures after Poland’s entry into the EU in 2004. With the introduction in 1990 of a very weak insurance system for the unemployed, many Poles responded by opting to retire – leading to a large rise in the number of pensioners and a surge in government pension expenditures. One of the major aims of the pension reform package, introduced by the right-wing coalition government in 1999, was therefore to institutionalise fiscal restraint and to encourage longer working lives through linking earnings to benefits. The government simultaneously ran a propaganda campaign showing future pensioners on exotic holidays wearing Hawaiian shirts, with the message being that individual pensions would be higher under this new private system.

However, the new reforms squeezed pensions in two ways. First, public pensions were no longer guaranteed to be 35 percent of the average wage and were indexed to price increases rather than wage growth. Second, by introducing a mandatory private fund, pensions were now at the mercy of the financial markets. The unspoken reality of the reforms was that future pensions were now not only going to be lower, but they would also be highly exposed to financial shocks.

The financial shockwaves that spread around the globe from autumn 2008 did indeed reveal the weaknesses of the Polish pension system. Almost immediately it became clear that the private pensions were going to be lower than people had been led to believe. In 2009, the first recipient of a mandatory private pension learnt that she would receive just ZŁ24 a month on top of her public pension. Admittedly, the woman in question had only been paying into the system for around ten years, but this nonetheless exposed how little these investments are actually worth. This was accompanied by Poland’s social insurance company (ZUS) sending, for the first time, projections of future pension levels to individuals paying into its scheme. People began to realise that their pensions would be even lower than those received presently by their parents – a sobering thought indeed.

At the same time, the financial crisis worsened Poland’s public finances, with the budget deficit exceeding seven percent of GDP in 2009 and public debt edging towards the government’s self-imposed limit of 55 percent. When the Polish pension system was reformed it was established that those aged 50+ in 1999 would remain within the old system. This meant that ZUS was required to continue paying these pensions, while 7.3 percent of total gross salaries was transferred to the private pension funds. This has added up to a total of ZŁ162bn since the beginning of the reform, equivalent to 11.4 percent of Poland’s GDP in 2010. This transfer has been one of the contributory factors to the growth of public debt, which has risen by 13 percent since the formation of the private pension funds.

The transfer of public money to private companies has to be further questioned when the level of profit that these companies have drawn from the public purse is considered. Professor Leon Podkaminer – from the Vienna-based Institute of International Economic Studies – estimates that in 2009 the private pension companies in Poland made a clear profit of around USD 766 million, from an investment of around USD 3 billion (ie, with a profit rate of 25 percent). While the privatisation of the pension scheme was supposed to extend individual choice and freedom, it has become clear that it has become a mandatory scheme for passing public money into the hands of private financial companies.

With public debt continuing to rise, the Polish government has realised that the present pension system could not be maintained. It therefore announced, in January this year, that it would be cutting the amount that is paid to the private pension funds, from 7.3 percent to 2.3 percent, with the clawed-back five percent to be used to cover the costs of present public pensions. However, the government has also stated that it will be seeking to increase the payments to the private pension companies to 3.8 percent by 2017.

Inevitably this has led to a barrage of criticism against the centre-right government, particularly from those who helped to privatise the system and who had previously considered the government to be political allies. The crux of their arguments has been that the government is reaching into the pockets of ordinary citizens in order to cover their own deficits. They argue instead that the government should seek more substantive reforms to reduce government expenditures.

As an alternative, Leszek Balcerowicz for one has proposed that the government introduces reforms such as raising the retirement age, taking away early retirement privileges, reducing funeral subsidies, stalling the planned lengthening of maternity leave, abolishing the one-off payment for newly born children and getting rid of VAT relief for hoteliers and the building industry. He also proposes that the government speeds up the privatisation process, in order to boost the government’s coffers. In fact one of the major criticisms, made by the original architects of the privatisation of Polish pensions, is that successive governments both failed to privatise enough and did not use these funds to cover over the hole left by payments to the private pension funds. However, the conception that it is either desirable or possible to continue selling state economic assets in order to cover the hole left by payments to private pension companies, is in itself highly dubious.

The move away, in recent times, from private pensions has not been restricted to Poland. Already governments in Latin America (including Chile, Argentina and Bolivia) have partly or fully nationalised their pension systems in recent years. In central and eastern Europe over the past 12 months Lithuania has reduced contributions to its private funds, Estonia has declared that it would freeze pension fund contributions, and in Bulgaria 20 percent of private vocational pension funds will put their assets under state control by 2014.

In Hungary, most notably, the current government announced at the end of last year that individuals would have to decide whether they wanted to invest in the state or the private pension system. Up to now, around 3 million workers in Hungary have been investing some of their pension contributions in private schemes and those that choose to remain with the private pension system will lose the right to draw their future state pension. By the February 1 deadline, 100,000 (or three percent) of Hungarian pension subscribers opted to stay in the private system. It is estimated that this de-facto nationalisation of the Hungarian private pension schemes will be worth USD 14.6 billion, a sum that the Hungarian government views as vital for working down the country’s national debt. The danger, however, exists that the Hungarian government will use these funds simply to cover its own public finance problems and meet the demands to cut its budget deficit laid down by the EU. Any return to a public pension system in Hungary should be combined with a commitment to use these accumulated funds to help valorise future pensions.

Sat alongside such reforms elsewhere, the recent decision of the Polish government can be seen to be rather modest. Moreover, a pressing question remains: if the private pension system has been such an obvious failure, why not just abolish it entirely?

That being said, and despite its coming under external political pressure, it is worth bearing in mind that the current Polish government happens to include many people with a personal interest in defending the private pension system. As has been documented recently in the Polish media, nine out of the 11 members of the present government’s Economic Council have worked at some time for a private pension fund. The Economic Council – created by Donald Tusk last year – is comprised of economists and businessmen who provide the prime minister with advice on economic issues and help to plan the government’s economic strategy. Therefore, while the Polish government may have made an important first step towards moving away from the private pension system, a large lobby group surrounds these pension companies and exerts a significant influence in national politics and the media.

If it’s of any reassurance to Leszek Balcerowicz, such interests are determined that any further move to abolish the private pension system in Poland ‘shall not pass’. The outlook for Poles working towards a pension, then, appears mixed, while for purveyors of Hawaiian shirts the main target market appears to be restricted for the time being to the top echelons of Poland’s private pension fund companies.

Thursday, 17 March 2011

A New Wave of Emigration?

On May 1st the German and Austrian labour markets will finally be opened up to workers from the new EU member states that joined in 2004. This is the date when the 7 year opt-out period, where countries could prevent workers from the new member states from working in their countries, finally comes to an end. And about time to. The situation whereby goods and capital could freely move around the EU but the movement of labour from East to West was restricted was never justifiable. Austria and Germany have been the only countries to maintain these restrictions for the whole seven year period - although most countries restrict the entry of workers from Bulgaria and Romania.

The question that is now raised is whether we will see a new wave of migration out of countries such as Poland? Already large number of Poles work in Germany and it is in fact estimated that there are already more Polish workers in Germany than in the UK. However, the vast majority of these workers are employed illegally - often in low-skilled manual jobs. Also, since January this year Polish workers have not been required to obtain permits to take up seasonal jobs in sectors such as the hotel industry, gastronomy, agriculture, forestry, fruit and vegetable processing.

Nevertheless, it is estimated that between 300,000 and 400,000 Poles could move to Germany to seek work in the next 3 years. It should be remembered that before Poland joined the EU in 2004 it was predicted that around 60,000 Poles would emigrate westwards - although it turned out that between 1.5 and 2 million Polish workers moved to Ireland and the UK between 2004 and 2008. Now we may hope that researchers have learnt from their past mistakes and that there will not be such discrepancy between the predictions and reality this time round. Also we should not expect that the level of migration will be on the scale of that experienced after 2004. Nevertheless, it is likely that Poland will experience a new exodus of labour.

This is due both to 'push' factors that encourage people to leave Poland and 'pull' factors that draw these people to Germany. Up till now those working in Germany have tended to be older workers who over time have developed informal networks that have facilitated them finding work in Germany. Younger and often better skilled workers have been more likely to move to Ireland or Britain. From May 1st such people will be free to look for work legally in Germany. Furthermore Germany is an economy that has been relatively unaffected by the global economic crisis, which will be another reason why Poles and other workers from CEE may seek employment there. The situation is certainly much better than that in Britain and Ireland - both suffering from the policies of austerity - and therefore it may also be postulated that Polish migrants in such countries will decide to seek work in Germany instead.

The major 'push' factor in Poland continues to be the extremely high level of unemployment, especially amongst young people. Unemployment amongst those aged under 25 exceeded 23% this year and is predicted to keep rising. Moreover, unemployment amongst young graduates is also continuing to increase. In 2010 unemployment amongst graduates rose by 15% (whilst unemployment in general grew by 3%). Currently over 1/3 of all those unemployed under the age of 27 are graduates from higher education institution. The situation is particuarly difficult for those studying humanities' subjects, with over a half of these graduates believing they have no chance of making a career in Poland.

Young workers in Poland also have to deal with a lack of job security and low pay. Of the 50% of 19 to 27 year olds in Poland who are in paid employment, 37% are on temporary contracts and 30% are employed by commission or through contract work (Umowa zlecenie/umowa o dzieło). This means that they have no job security and their social security payments are not paid by the employer. The average monthly salary for these young workers is just 1446pln (€357) a month. You do the math!

Despite this situation the majority of young Poles do not wish to migrate, with only 15-20% stating that they are prepared to leave their place of residence to look for work. The reality of the situation is, however, that Poland could once again see some of its most educated and dynamic workers seek employment elsewhere. The ability to move freely and work in other countries is a human right and brings great benefits to individuals. In many ways Poland has benefited from the outflow of labour since 2004 - after which unemployment fell and money flowed back to the country. The fact that a large section of its population has had the experience of living and working abroad is potentially a huge asset to the country, especially if a section of these people return to Poland. However, the situation on the labour market is not only discouraging a large flow of returnees to Poland but is also threatening a new outflow.

According to the Polish Statistics Agency the Polish population will fall by 3 million by 2030. This is no surprise in a country where the birth rate and immigration are low and emigration is high.

Wednesday, 16 March 2011

Thousands Demonstrate Against Romanian Government

On 16 March over 10,000 demonstrators gathered outside the Romanian parliament during a a no-confidence vote on the present government. The demonstration was organised to protest primarily against the reform of the labour law that will make it easier to fire people and work longer hours.

Romania has been one of the countries most harshly affected by the economic crisis in Europe. In 2009 its economy contracted by more than 7% and it was forced to turn to the IMF, the EU and the World Bank to obtain a combined loan of $20bn. The conditions placed on this loan were - inevitably - tough and the funds were only released once the government agreed a series of spending cuts to bring down its budget deficit.

The measures initially announced by the government included cutting public sector wages by 25% and pensions by 15%. However, following a wave of protests, the cuts in pensions were declared to be unconstitutional by the Romanian constitutional court. The government responded by raising VAT 5 percentage points to 24%, announcing cuts in public sector jobs and introducing a series of social spending cuts. The present proposal to reform the labour code is part of this overall programme.

The vote of no-confidence in the government initially took place in December last year. However, the vote had to be postponed as in the middle of the debate a television worker - Adrian Sobaru - threw himself off the balcony in parliament in protest at the government's decision to cut benefits for disabled children. Sobaru's son has autism and he has since become a symbol for the protests.

You can view Sobaru's protest here. The images are graphic and disturbing but they reveal the anguish of those suffering due to the policies of austerity being introduced in one of Europe's poorest countries.

Monday, 14 March 2011

With Friends Like These.....

Imagine you are Prime Minister. Other countries from an organisation you are already a member of set up a new pact. They say you are allowed to join them but cannot attend their meetings and that you must introduce policies that will both harm your economy and increase your domestic unpopularity. Would you want to join? would you heck. Yet, these are precisely the conditions which Poland has agreed to when it asked to be included into the 'competitiveness pact' being promoted by Angela Merkel and Nicolas Sarkozy.

On Friday the leaders of the eurozone countries met to discuss this 'competitiveness pact' . The proposed pact aims to draw up a set of commitments that are more ambitious and binding than those already agreed by the EU member states. Amongst the pact's proposals are maintaining public debt below 60% and the budget deficit below 3% of GDP; reducing the tax burden for companies and linking the retirement age to life expectancy. The finalised pact will be put to a vote at a further meeting on March 24/25.

This is an attempt by Germany and France to shape the future direction of the EU and to tighten the monetarist requirements for membership of the eurozone. It ostensibly seeks to avoid the budget crises that have inflicted many eurozone members and to impose further restrictions on those economies receiving a financial bailout. The pact also proposes to further the independence of the eurozone, through - for example - the eurozone member states meeting separately once a year before the annual European Council that discusses the EU's economic policy.

This pact endangers the project of European cohesion and economic growth for a number of reasons. Firstly, if passed, its proposals would deepen economic austerity in Europe - thus imposing a set of economic measures that have proved to be both economically disastrous and politically unpopular. Ireland was the first to adopt austerity policies in Europe - egged on by Brussels - which pushed the country further into recession, thus worsening the country's public finances. Last month the electorate passed its verdict on its political masters in Ireland - suffering a fatal blow to the ruling Fianna Fáil party and its allies. The return to negative growth in the UK and the growing unpopularity of the coalition government is another such example of the economic and political results of austerity. The fact that Polish PM Donald Tusk can even contemplate winning a second term in office this year is mainly due to the fact that his government has so-far avoided the outright economic assault launched elsewhere.

The proposed pact threatens to create new divisions within the European Union. The eurozone is made up of only 17 states, with the majority of the non-eurozone members of the EU situated in Central-Eastern Europe. The further separation of the eurozone members threatens to weaken the political influence of these states and it was for this reason that countries such as Denmark, Hungary and Poland initially protested against this move. However, the threat does not end there.

Already some within the richer eurozone states - such as Germany - are suggesting that a new division of the eurozone is created. This would involve splitting the euro into two zones - one encompassing the 'northern zone' centred around countries such as Germany, Austria and the Benelux countries and the second a 'southern zone' encompassing countries such as Spain and Italy. The regressive nature of this proposal is underlined by some justifying it through claims of 'cultural differences in mentality' . Forget the huge benefits that Germany has enjoyed as the main exporter in the eurozone, don't mention how Germany was one of the first countries to break the Growth and stability Pact, remain silent about how countries such as Ireland have had to pay draconian interest rates on their recent loans.

These new divisions in Europe have potentially negative consequences for the poorer countries in Europe who stand outside of the eurozone. Non-eurozone countries such as the UK enjoy stronger, more stable currencies and are able to follow a more independent economic course. However, for countries in CEE such an option is not possible. These economies are more exposed to the global financial markets and often suffer from outflows of capital and currency uncertainty. This was evident following the outbreak of the economic crisis in CEE when the currencies in Poland and Hungary devalued by 30% and 20% respectively. This situation is particularly dangerous in CEE, as a large proportion of loans (up above 80% in the Baltic States) are taken out in foreign currencies.

Fearing being left adrift Poland is now seeking to be incorporated into the 'competitiveness pact'. Tusk has confirmed that he would like Poland to sign up as a non-eurozone member - although it would not be able to participate in the meetings or influence their decisions. This would place further pressure upon Poland to introduce its own austerity measures. Already Poland is obliged to meet the Maastricht criteria by 2012 and has - for example - committed itself to bringing down its budget deficit to below 3% of GDP (from its current near 8%) by next year. Two weeks ago the Polish government sent a letter to Brussels outlining how it would do this (read: more spending cuts and increased VAT).

By committing itself to the 'competiveness pact' Poland is hoping that it can embark on a fast-track towards adopting the euro as its currency. This indeed would be a great stabiliser for the Polish economy and the eurozone's expansion into CEE would be another step towards the integration of the European economies. However, currency integration along the lines set out in the Maastricht Treaty (let alone the competiveness pact) promises economic stagnation not growth. For these reasons, the Polish population is increasingly sceptical about entering the eurozone (whilst on all other matters it is extremely pro-European). Therefore, whilst in 2002 nearly 65% of society supported adopting the euro, this had fallen to 52% in 2009 and 41% in 2010 (with 49% against).

The economic crisis is destabilising the EU and bringing into question the principles of solidarity and economic cohesion. Rather than constraining itself in a pact upon which it has no influence and from which it has little to gain Poland should be using its influence in CEE and beyond to propose alternatives to the policies of austerity and division.

Tuesday, 8 March 2011

Women's Day - No More Exploitation

Women's Day is a big event in this part of the world. As in other countries in the region women are given flowers in Poland on March 8th - following a tradition passed down from Communist times. Yet outside of these celebrations the political side of Women's Day is becoming increasingly prominent. On Sunday women's organisations in Poland held marches (Manifa) in Warsaw, Gdańsk, Toruń, Kraków and Wrocław.

The Warsaw demonstration was organised under the slogan 'No More Exploitation - We Quit Our Service'. Up to 6,000 people attended this demonstration and included women and men from a variety of backgrounds, ages and political persuasions. This event has become increasingly popular and successful due to its ability to combine the political demands of women concerning issues such as reproductive rights with socio-economic issues like income inequality, lack of nurseries, maternity leave, etc. There was a strong presence of trade unionists on the march - including from the teachers' and nurses' trade unions.

Women certainly have much to protest about in Poland. Abortion is illegal, maternity rights and benefits are poor, pensions are lower, there is a lack of nurseries and child care services and there are huge pay inequalities between men and women. Below I publish information posted on the site Lewica.pl that shows the extent to which women earn less than men in Poland:

Women in Poland earn on average a third less than men according to data published by the European Commission. Poland has some of the highest gender inequalities in Europe. In Italy the salaries of men and women differ by around 5%; however in Poland and Estonia this is about 30%. The European average equals 17.5%.

Furthermore, a report into salaries in Poland carried out by the Human Resource company Sedlak & Sedlak - using a sample from the Internet of over 101,000 respondents - discovered that the average Polish woman earns 1,000pln less than the average Polish man.

Kraków is the worst in this respect with men paid up to 38% more than women - which is a few percent less than in Warsaw, Katowica and Poznań - where inequalities nevertheless exceed 30%. According to this research male architects earn as much as 2,500pln more than female architects and pharmacists 600pln more. Also while the average gross salary of a male supermarket cashier equals 1,717pln, his female counterpart earns just 1,500pln. The situation is similar for many other professions.

New CEE English Language News Service

A friend of mine has recently set up this new site COGO - Central East European Matters. It aims to draw together a range of news, views and creative writing on matters of culture, politics and economics connected to Central Eastern Europe. Unlike many other such ventures it has a critical and eclectic approach and is open to a variety of standpoints and approaches. You'll find some articles from this blog posted there.

Please take a look, give it some support and perhaps even contribute. Its a worthwhile project.

Friday, 4 March 2011

A Sustainable Course of Economic Growth?

The Polish Statistics Agency (GUS) has recently published its results for the fourth quarter of 2010. Economic growth increased -year on year - by 4.4%, compared to 4.2% in the third quarter. These are again impressive figures for an economy that - unlike its European neighbours - has continued to grow since the outbreak of the global financial crisis at the end of 2007.

Despite the country's positive economic performance the sustainability of this growth is questionable. Increasingly imbalances are observable within the Polish economy - in particular that between rising domestic demand and stagnant private investment. After growing by more than 17% in the first quarter of 2008, the rate of private investment slumped to -12.8% in the first quarter of 2010. Although this improved throughout the year, private investment only grew by 0.9% in the fourth quarter of 2010, despite businesses increasing their own gross accumulation by 8.4%. As in other countries, businesses are hording profits and - despite enjoying preferential tax rates - these increased profits are presently not being passed onto the rest of the economy. Elsewhere this has aptly been termed an investment strike.

So while private investment flounders, the consumer is taking up the slack. In the final quarter of 2010 private consumption increased by 4.1% - continuing its recovery after falling to just above zero during the first quarter of 2009. This is partly being driven by some improvements in the labour market. The amount of people working in Poland increased during 2010 by 1.7% and average salaries grew throughout the year by 3.5%. Both of these figures have obviously contributed to an increase in domestic demand. On the other hand, the unemployment rate continued its upward trend last year - reaching 11.5% at the end of 2010 (up from 10.4% from a year earlier). Also, although salaries have risen during the past year, this has been at its slowest rate since 2005. Furthermore, these wage increases have been exceeded by rising prices, with inflation reaching 3.8% in January this year.

This means that the average wage earner is seeing her living standards at best stagnate if not decline. Also this rise in salaries is extremely uneven. The salaries of those working in sectors such as agriculture, forestry, electricity, education, water/sewage, manufacturing and administration/support rose by at least 5%. However, the salaries for those employed in transport, mining and construction grew by less than 2% - far below the rate of inflation - while salaries actually declined for workers engaged in professional, scientific and technical activities. The salaries of public sector employees rose faster than those in the private sector last year (growing by 4.1% compared to 3.3%). Over 1/3 of all workers are still employed in the public sector in Poland and their average monthly salaries are ZŁ600 higher than their private sector counterparts. Therefore, the government's plan to cut public sector employment and freeze some public sector salaries could have a serious negative impact on domestic consumption.

So, if salaries are growing on average at a slower rate than inflation why has domestic consumption continued to expand by more than 4%? One answer to this can be found in the continuing growth of private credit and debt. Poland came through the financial crisis relatively unscathed partly because its level of private debt was comparatively low. The base interest rate in Poland only fell below double figures in 2003 and banks in Poland continued to 'conservatively' lend. However, all this has changed. Rather depressingly Poland is now trying to make up for lost time and individual debt is expanding at an alarming rate. A recent report by Infomonitor shows that for the first time the number of Poles who are unable to keep up with their credit payments has exceeded 2 million. The total amount of over-due credit payments is now worth more than ZŁ28bn. The average level of debt held by those considered to be in risk by Infomonitor has gone up from ZŁ6,600 in the second quarter of 2009 to ZŁ13,900 in the corresponding period of 2010. Reports have shown that banks are actively trying to entice pensioners to take credits and that the actual costs of taking these credits are hidden from the client - often adding up to nearly twice the sum of the original credit. It really does seem that leopards can't change their spots. With the expansion of credit an essential component of the consumer led growth, the Monetary Policy Council took the controversial decision this month not to raise interest rates.

While this contradiction between private investment and consumption has been widely considered in the media, a third factor has been generally overlooked: public investment. This blog has previously pointed out the important role that the increase in public investment has had on maintaining Poland's positive growth. A recent report from the European Commission into the role of public investment in Poland further underlines this. It points out how the significant increase in public investment - following Poland's accession into the EU - helped to smooth the economic downturn during the crisis and that increasing the extensive use of EU funds as a means to invest in the country's infrastructure would now help to support its recovery. The report also points out that while public investment has increased significantly over the past few years (rising from 3.5% of GDP to 4.5% between 2005 and 2008) this was from an initially very low level of capital expenditure. There had been no investment into the country's infrastructure (such as transport) prior to EU accession, with funds designated to maintaining an infrastructure that was steadily degrading.

It is interesting to look at a graph provided in the report that shows the relationship between public investment and economic growth in Poland. As we can see, the recovery in public spending helped to pull Poland out of the recession it had entered at the beginning of the transition. Then from the late 1990s (during the term of the catastrophic AWS-UW government) public investment fell sharply helping to significantly slow the pace of economic growth. Public investment then began to grow rapidly around 2005 soaring above its pre-EU accession level.

Contrary to the ideologues that have dominated public debate - economic growth has increased when the government has invested more and slowed when its investment has reduced. The danger now is that the government will rein-in public investment as it seeks to cut its public spending. In previous articles I have shown how the government has already started to cut back on its investment in the country's infrastructure and also at how it is compelling local governments to curtail their spending. The policies of the PO administration are therefore threatening the twin pillar's of Poland's positive economic growth: consumer demand (through cutting public sector jobs and salaries and raising VAT); and supply (by reducing public investment).

Thursday, 3 March 2011

Interview with Polish Railway Trade Union Leader (Part 2)

Below is the second half of the interview with the leader of the Railway Trade Union Confederation in Poland published in Labour Notes.
How the Polish Railway is being destroyed… And how to fix it? (Part 2)
By jadakiss05, on March 1st, 2011

Why were union funds for infrastructure suspended?

That decision made us write an impulsive open letter. 25% of railway lines were closed. At this moment 19 000 kilometres of railway lines are functioning. There were 27 000 kilometres earlier. The president of Polish Railways S.A. says that the company can maintain at most 7,5 000 kilometres. In the coming years two thirds of railway lines will be closed. The residents of Kraków and Lublin have threatened Grabarczyk that if there will be no bypass then the Civic Platform will be dealt with in the next elections. That is why it was decided that money could be taken from the railways. It is explained that the railway is not in a state to manage these funds. That is a half-truth. I am not saying that Polish Railways prepare for all projects perfectly and on time. I am only making a point on the fact that the government did not prepare the legal and organisational conditions for such a serious investment.

First of all- the Minister of Finance did not give guarantees on credit for Polish Railways which would have financed its own contributions. If that money is not available you cannot get any grants. The law on commercialisation and privatisation was passed but the railway was not given access to its assets. If the government wanted to shorten the long process of enfranchisement, notaries, allotments then the law would have given the railway power over its assets, predicting compensation for its present owners. Legally a huge amount of investment work has to be done just like it was done in road infrastructure. Because there is no regulations which can hurry up investment processes. Railway workers have to ask about everything: if water is flowing from the platform, then it is a “leak” and you have to put a drainage system in place at once and so on…

Even if there is investment in railway infrastructure it is only in trans-European circles which are needed by the European Union. In Poland the lines that are needed are those that go from north to south. There is no railway investment in in Śląsk (South of Poland). If a train goes there at a speed of 10km/h it is possible go to it, open the door and calmly put in some coal, which is done anyway.

In the European Union it was decided that 60% of the budget is directed to road investment ,and 40% to rail transport. In Poland roads and railways are financed at a proportion of 95:5. The railways have to repair on their own and coordinate the process of exploiting railways. The rates on the availability of infrastructure for transporters are some of the highest in Europe. That means that for access to railway lines you need to pay ten times more than you pay for access to a carriageway.

The debt of PKP S.A. has been talked about a lot. How did these debts accumulate?

Because of the use of public transporters without refunding them. Parliament provided some relief but it did not give money. More than 400 000 people worked in the railways. Today there are around 100 000 workers. The railway health service was liquidated, nurseries, tailors…. A whole sector of the economy was restructured without a single zloty coming from the budget. PKP even replaced the employment offices, paying the retrenched workers pre-pension benefits. Also some government companies were in debt-for example the ironworks. Because the ironworks were earmarked for privatisation-their debts to PKP was suspended. The ironworks found a foreign investor and PKP remained with debts.Every year the subsidiaries must raise a 300mln ransom which is then used for paying interest and not debts. I note- that debt did not come about because of rail workers. That is a national budget debt in PKP S.A. The rail has been always a trash can where you can always take from and where you can always dump into.

Was any procedure of removing debts in PKP S.A. ever put in place?

A fund was created in which money from the sale of fuel is directed there. It was meant to enable the building of rail infrastructure. However, because PKP is in debt it has been decided that the fund will buy shares of Polish Railways on behalf of the national treasury. Because of that, PKP will then have money to pay its debts. The problem is that in the next few years those funds will cover only one third of the debt. The rest around a billion zloty per year, the Polish Railways must find it on their own. They could take credit but the government’s guarantee is needed. That would in turn increase the public debt. The government would not agree to that. The only options that are left are the selling of assets and privatisation. The best railway companies are preparing for privatization. It is not about increasing capital so that the companies could invest but about the brutal selling of the most valuable assets only to pay debts. That is why for example Polish Railways is being sold to a company with a 20% return.
The infrastructure repair centres have been sold. PKP Cargo the second largest goods transporter in Europe is getting ready for privatisation. Because there is a crisis in Europe -there is no profit in big railway companies. Polish companies will be sold to anyone, for cheap so that the debts can be paid.

Us as trade unionists do not want money from the budget. We just want the creation of a level playing field. We are not against privatisation but we want the money obtained in such a way that it funds rail companies in order for them to become more competitive. I will give an example, for the past few years Cargo has been operating in an open transporting market. However because it is being forced to pay the credit for PKP cargo it is less competitive according to Polish and foreign transporters. German companies have been allowed on the market and they do not have any debts. In addition to that they have access to public funds which finance the buying of equipment and so on. How are we supposed to compete in such conditions?

What does the future hold for the National Railways?

Without the systematic changes of which we talked about nothing will change in the railways. For the government the PKP debt is marginal. The government is spending public debt and reducing the deficit is not important. For us however it is a matter of life and death.
Poland is situated at the centre of communication in Europe. We could compete in the transportation of goods and earn a lot. But the lobbists in the car industry will not allow that because they want to maintain the inequality between road transport and rail transport. In Poland sometime it is more productive to transport coal by trucks from the mine to the port. The state is interested mainly in road transport but it does not look at the consequences of such politics. How many people die on Polish roads? How many are removed from professional life? How much are the costs of rehabilitation?
For a number of years we have been saying that the processes of restructurisation are going the wrong way. Now we are standing over irreversible decisions. If a company collapses or is sold we cannot do anything. The railway workers will have to pay for those decisions. This time they are not at fault in any way-they just do what they are told.
If nothing is done the regional transporters will collapse, equipment will be divided between voivodships which create these companies. The consequences are that there will be more problems when it comes to travelling between voivodships, the costs of exploitation will rise and in regions where there are few travellers trains will be liquidated. In the main towns the only available connections will be those by road. Two thirds of the railways will be closed and the regional transporters will be practically liquidated. That would cause economic problems in regions. If there wont be any railways then there wont be any investment.

What should be done to avoid such a scenario?

Unfortunately no one wants to see a situation where the polish railways are only limited to the needs of the Polish economy and not the European economy. The most important thing here is the will. If there is no will there are always a million reasons available for not doing anything . If there is a will then there is need to fix all the things that we talked about. First of all we should find a way to liquidate the debts in PKP S.A.
The problem with the rail is that trains should not only be colourful, smell good and have good promotion but they must also operate. For that specialists are needed , those who know the exploitation processes needed for operating trains. Unfortunately for a number of years the railways have been managed by people who think that they are rectifying the problems by making the trains nice and smelling good, not having the slightest idea of the exploitation processes. They draw some plans where a train goes across the whole of Poland without servicing. On paper everything is ok. Only that in reality nothing is ok.This is not about lack of motivation. Simply they are incompetent people. I wonder what would be if these people went to manage banks.

In what ways are trade unions opposed to this situation?

In 1998 we organised a four day strike of train engineers. We demanded then that the railways be financed on a level of 1% of the GDP. We organised conferences, we prepared even alternatives projects for changing the railways. However the management did not take it seriously.They treat trade unions as boys with dirty fingernails. Our efforts are tossed away and they hire consulting firms. Therefore I am not optimistic but I can assure you that we will fight to the end!
Translation: Marlon Nziramasanga

Wednesday, 2 March 2011

Interview with Polish Railway Trade Union Leader (Part One)

The following interview, with the President of the Polish Railway Trade Union Conferderation, recently appeared on the site Polish Labour Notes. This site provides news and information about trade union activities in Poland. I will publish the second half of the interview tomorrow.

How the Polish Railway is being destroyed… and how to fix it? (Part 1)
By jadakiss05, on February 18th, 2011

Wojciech Figiel and Bojan Stanisławski speak to Leszek Miętek , the president of the Confederation of Railway Trade Unions.

Could you please tell our readers how the process of restructuring the Polish State Railways was done?

The railway company was functioning as one state company up to September 2000 when the commercialization, restructurisation and privatisation of Polish State Railways law came into force. In accordance with this law Polish State Railways S.A. was created along with its subsidiaries. It was all about that PKP S.A. take over the railway debts and the whole burden of restructurisation. The “sick mother” was supposed to give birth to healthy unindebted children. Let us add that this law lobbied for a foreign consulting company that gave advice in the privatisation process of British Railways. It was a fiasco. The British paid a lot of money for this re-nationalisation than they did in World War II.

The breaking up of the Polish State Railways was motivated by the need to put Polish railway regulations in line with European Uniom directives which stated the separation of Railway infrastructure from trains.This time not only trains were separated but also other companies which were important in serving the Railway infrastructure such as for example energy or Railway telecommunications. Besides that the companies that were in charge of transporting passengers and goods were isolated. The Cargo company was trusted with managing the whole stock which it rented to passenger transporters. In a space of ten years of restructurisation , locomotives and wagons have been taken from Cargo to passenger carriers,and commuter trains.

How many subsidiaries are in the PKP S.A.group?

No one knows that. For sure there are a number of subsidiaries affiliated with trains . It is worth remembering that when a client buys a ticket he thinks that he is travelling by train, travelling by PKP (Polish State Railways) considering both as one thing.

Railway transport as opposed to road transport is a structure that is inter-dependent. Dividing the railways into many subsidiaries brings complications associated with organising the timetables of trains. We use tracks that belong to Polish Railway lines. The controlling of trains is done with the help of isolated subsidies- Railway Telecommunications. However electricity is provided by the energy subsidiary. All these subsidiaries are interdependent and they cannot operate if they do not cooperate. Their division creates the need for the separate paying of tax and transferring of money. A number of different transporters operate in this kind of infrastructure. However each one of them have their own norms as well as safety in the workplace.

What kind of “complications” associated with train services came about after the breaking up of PKP?

Transporters function in accordance with business law- they must compete amongst themselves. The Intercity squad and the Regional Transporters compete on the Polish railways. The second company introduced InterRegio trains which service the routes between voivodships. The InterRegio routes are made possible with the help of commuter trains(EMU’S) which are made for local routes and not for the whole of Poland. On the same route trains go one after the other with a difference of ten minutes or they go unannounced. However it used to be like this, at the station trains for different destinations were available, people could get in and after that the trains would leave for their respective destinations. Nowadays I have a problem with getting to Warsaw because at the station the train for Warsaw leaves ten minutes before the arrival of my regional train. It also happens that the passenger buys a ticket then it happens that it is not valid because it was given by another company.

What processes of restructurisation backfired when it comes to safety?

The security systems were not consistent with the process of liberalisation. That is why we can expect shortly, very serious complications in this area. At present each transporter gives their own instructions to the train engineer. In reality all norms should be confirmed by the government organ regulating railway line transportation but that does not give any guarantees that they are in agreement with each other.We have one instruction on the technical controlling of railway movement but all the other factors like braking systems and other important instructions set by the transporter personally.

The workers working in the railways, train engineers,train dispatchers and so on are mostly people who have 30 years experience. Let us tell ourselves the truth the railways function thanks to their work and experience. I do not know how it will be when young people come who are without railway education,(railway schools were closed 10 years ago),trained too quickly, unused to dealing with extreme situations and
taught according to different railway rules. I do not want to be a prophet of doom but honestly speaking it can be a catastrophe.

How are train engineers trained at the present moment?

In line with the Third Railway Package which was accepted by the European Union the train engineer is trained and he gets a licence and a certificate soon after. The licence is given by the government office regulating Railway Transport and the certificate is given by the transporter. The problem is that the European Union set some standards which train engineers are supposed to master but it was not precise on the time frame. The minister of Infrastructure did not consider our regulations. In the regulations book there is nowhere where they address the amount of time needed by the train engineer to master certain topics. The result is that private training firms save on time and make the training shorter.

The Third Railway Package also liquidates the position of train engineer assistant. Up until now that position was very important. The assistant learnt the required skills, he learnt the routines and habits of the train engineers. Nowadays a young person, from the street without the knowledge of any compatible skills will operate the train. Alone.

Sometime ago in the Polish State Railways there were the same security standards. Nowadays every transporter employs his own train engineer. It is reaching such a point that private transporters employ train engineers on short term contracts or they hire services from a “one man company offering train engineering services”. There is no central registration of self employed train engineers. It is hard to tell at the moment how many transporters have such train engineers.

In some private railway businesses the working hours of a train engineer are are counted from the the moments “he gets into the locomotive”. If the train engineer lives in Warsaw and the train is supposed to travel to Gdańsk, the time that the journey takes is not counted as working hours. He rests in the train because he has not yet made it home then gets another phone call with the next task.

Catastrophes are now prevalent on Polish railways, in Korzyb (North Western Poland). There are such locomotives made in such a way that the train engineer can only see from one side because from the other side the engine blocks his view.If he wants to go in another direction he must reverse looking behind him. That led to the accident in Korzyb. Sometime ago the assistant sat there and informed the train engineer of any danger. Nowadays that place is empty. Sometime back those kind of situations were regulated by the R1 rules which stated that one man service was only possible in locomotives which had two cabins.(those which had cabins from both ends), those which had automatic train braking systems. However in the year 2003 the minister amended the formula which said “single person service is possible for twin cabin locomotives”. The words “twin cabin” were “removed”. After last year’s catastrophe in Korzyb the prosecutor took over but then refused to open an investigation when she did not see the presence of any criminal acts.

You mentioned InterRegio trains. What is the situation at the present moment in the regional transporting company?

The regional transporters are pro-social transporters who should be sponsored if the costs of running trains are more than the income generated from the sale of tickets. A few years ago all the equipment was the property of the Cargo company which subsidised passenger trains leasing locomotives and electric multiple units on some routes. Little financing from the earnings of Polish State Railways Cargo led these companies to lose their position on the market. Successive governments cut funds meant for passenger transporters as the wanted to get rid of them. In the end the government managed to accomplish its mission. The regional transporters company was given to local government. Earlier, commuter trains had been given away to Regional transporting companies , all the locomotives were added to the inter-provincial trains and the wagons were given to Intercity so that the Regional transporters would not have the equipment to service the inter-provincial routes.

The Regional transport company has got 16 owners. Each one of them has 4-5% shares. The largest part is owned by the Voivodship Marshal and that is absurd when the passengers in this voivodship are transported by the Mazovian Railway company. The voivodship Marshals in a space of 2 years were unable to work out a collective expansion strategy. To finance the subsidised trains the personal income tax and corporate income tax to the local government was increased. There is no controlling how much of that money reaches the passenger train department. Already after 2 months in business, because of the mistakes committed during the process of subsidising the Regional transport company was around 400 million in debt and it filled the criteria for bankruptcy. Besides that the Regional Transporting companies are the property of local governments-there is no obligation to sign contacts with them. It is not an inside company so the local governments must organize bidding for certain routes. And the bidding is done in different ways. For example the Marshal of the Kuyavian- Pomeranian voivodship announced bidding for the servicing of diesel traction on which around. 10% of routes in the region are made. A 10 year contract has been signed with Arriva for which the Marshal gave 40% of all resources. From the information from Arriva which I have, it shows that during the last time when there was a lot of snow there were days when there was not even one train on the routes serviced by this transporter. And there was no outcry in the media but only the exact opposite. The media hyped the rise of competition in the Kuyavian-Pomeranian voivodship. The truth is that when Arriva started to compete in this transporting business it did not have the right equipment and it it did not prepare qualified train engineers. The last ones were taken from mines!

The Marshals are obliged to finance trains only in one given voivodship. It also happens that passengers travelling with Regional trains go to small stations which are on the peripheries of the voivodships. From those stops they are then taken to their intended destinations in the next voivodship by bus. We have that situation with the line that is servicing Białystok (In the North East of Poland)and Warsaw. Trains only go up to Czyżew (North East Poland)-which is the border of the voivodship and most travellers would want to travel to Małkini. The problem is that Małkini is already in that same Mazovian voivodship which does not want to fund these trains. In the near future passports will be needed at the borders between voivodships…

I would like to underline that a lot of costs that are encountered by transporters are equipment costs and costs in the everyday running of the company.We have a tendency that, the voivodship Marshals organise their own companies that are Regional transporters. How does that influence permanent costs? If equipment is going to be repaired only in the voivodship then instead of a number of service points that are open around the clock there will be fewer service points. Which are more expensive to manage.

The minister of infrastructure promised us that before the process of subsidising there will be a package of guarantee for the workers. Up to now it is still not in place. The company separated itself from the trade union of railway workers. It announced a Company Collective Bargaining system and it does not want to go along with the rules of of workplaces. For the government the problem is public debt and for us the fate of 15 000 people who work just in Regional Transporting. At the same time the government is showing off commercialisation laws in parliament which are slowly causing the collapse of railway companies. If these laws are passed then Regional Transporters will collapse at once.

And how is the situation in Intercity?

When 2 years ago inter-provincial trains were given to Intercity the capital of the company increased by 300% and capital inflow increased by 50%. Already we had noticed that the situation of this company would get worse in dramatic fashion. 2 years ago the directors went around the country and requested that the train engineers and other workers that they leave Regional Transporters and come to Intercity. And now the president of the same company in a meeting with trade unionists said that he has 50% more people than he needs and they need to retrench some.

The actions which are worsening the results of the company are a lot. The management of the company is blaming everything on the introduction of cheap trains by InterRegio. In my opinion the main reason for the loss of passengers in inter-provincial transporters is the catastrophic state of railway infrastructure. Who would want to travel by train from Warsaw to Gdynia (Northern Poland) when the journey will take 7 or 8 hours. That line has been under renovation for 6 years. On the other lines the commercial speed is not above 40km/h. A train needs more than 1 hour to cover a 60 kilometre distance between Toruń (Northern Poland) and Bydgoscz. The businessmen travelling by Intercity cannot allow that. Let us note that Intercity does not complain on the number of passengers on the Warsaw-Kraków (Southern Poland) route or Warsaw-Katowice (Southern Poland). The infrastructure for the central railway route is in a better state and sometimes rail transport can compete with road transport.

Translation: Marlon Nziramasanga