Over the past few months Europe’s eyes have been on Poland. Most of the attention has been on the political changes introduced by PiS, but less concern has been paid to the economic programme of the new government.
Most of the attention has been on the political changes introduced by the conservative right-wing party, Law and Justice (PiS), since it formed a majority government in October. The introduction of reforms to such things as the Constitutional Tribunal and Media has seen the country move in a more authoritarian direction. However, less concern has been paid to the economic programme of the current government, outside of some general criticisms that it is planning a series of irresponsible social reforms that threaten the country’s fiscal stability. Yet, the PiS government has a distinct economic policy that could potentially result in a significant change in the country’s economic course. This conflicts with some entrenched vested interests, both international and domestic, and raises new dilemmas for the Polish left.
From Neoliberalism to National Capitalism
Over the past couple of decades, Poland has been integrated into the international division of labour as a country with low wages, taxes and labour standards. The country attracted large inflows of foreign capital, often through the sale of its state industrial and financial assets. This has left the country with an underdeveloped national capital base, with around 70% of Polish banks owned by foreign banks. The country underwent a huge period of deindustrialisation during the transition. At least two-thirds of the country’s medium and large industrial enterprises collapsed, leading to around 2 million people losing their jobs (http://tinyurl.com/j6q45eb). Since this time, at least 45% of the Polish workforce has remained inactive (i.e. they neither work nor study), with large areas of the country suffering high unemployment and poverty. Average salaries continue to be more than 4 times lower than that in countries like Britain or Germany; and more than a quarter of those in work are employed on temporary insecure contracts. It is little wonder that around 2 million people have emigrated since Poland joined the EU in 2004, nor that a large percentage of them are settling abroad long-term.
The standard economic recipe to this situation has been for more liberalism. Poland may have amongst the lowest and most regressive personal and business income tax rates in Europe; just 12% of the workforce may belong to a trade union; wages may remain low and labour standards lax. But this is never enough. Polish workers must be expected to work harder, under increasing precarious conditions where the dictates of agencies and contractors rule. It is little wonder that a company like Amazon opened up new logistical centres in Poland, where it could employ staff on less than 3 Euros an hour, working 10 hour shifts, with just one half hour and two 15 minute breaks (http://tinyurl.com/jxkg26m). This level of exploitation has left a section of society angry and frustrated, especially in a period of economic growth when the fruits of this development have been unfairly distributed. And with the left in Poland weak and divided, it has been the conservative right that has capitalised on this social dissatisfaction.
‘Wedid not promote Polish ownership or our own national companies, but we de facto gave a privileged position to foreign capital. We did not try hard enough to develop the Polish economy and businesses, based upon Polish talent or assets. In reality we needed money and we had to open up to it, but we should have been more selective about which Polish firms we sold and only open up where it was absolutely needed (...). We are now in a situation where a large part of the national property, worked on every year through the hard labour of Poles, flows abroad – and we will not be in a state to retrieve it quickly.’
The present government now claims that it wants to support Polish businesses and innovation, in order to make Poland a major competitive economy. The PiS government therefore represents a section of the (aspiring) bourgeoisie in Poland as well as many small and medium business owners who are struggling to compete in the conditions of monopoly capitalism. And in order to become the first party in modern Poland to gain an overall majority in parliament, PiS also reached out to low earners and the socially excluded. This social alliance is presently being kept together through a promise of taxing international capital in order to gain the resources to support national businesses and fund social spending.
Taxation and Social Spending
The government’s first revenue raising proposal is a law, already passed in parliament, introducing a tax of 0.44% on bank assets. As noted above, the banking sector is concentrated heavily in foreign hands and it has enjoyed a period of continuous high profits, along with some of the highest fees and commissions in Europe. The second proposal is to implement a new tax on supermarkets. It is envisioned that this will be a progressive tax, with the larger (mainly foreign) supermarkets carrying the major burden of this tax. The Prime Minister, Beata Szydło, has argued that this tax ‘will give small commercial enterprises in Poland a fighting chance to compete on the market’. The government is therefore attempting to tax large mainly foreign financial and commercial enterprises, whilst claiming that it wishes to help local businesses. Before considering the problems connected with these measures, let us look at the social programmes that they are designed to fund.
Throughout the past quarter of a century there has been an almost one way redistribution of wealth to the richest sections of society. PiS claims that it wishes to reverse this trend and its flagship reform is to provide families with 500 Złoty a month (around 113 Euro) for every second and additional child. This will provide a significant increase in income for millions of families, particularly in those areas where incomes are low and poverty high. This will be provided for all families irrespective of income, for the second and additional children. However, for the first child this will be means tested at a level below the social minimum (800 Złoty – around 181 Euro), meaning very few families will be able to receive it. This social policy is not only supposed to alleviate poverty but also to encourage families to have more children and thus raise the country’s low birth rate. It also fits the conservative ideology of PiS, based upon promoting the ideal of the traditional family. This is not a social policy based upon a left-wing premise of universalism, with many of those most at need (such as single mothers with one child) excluded from this benefit. Also, it does not encourage women to work and tackle the low activity rate of women on the labour market, nor provide general help to parents through investing in things such as preschools (where there is a serious lack of available places).
Despite these shortcomings, this proposal offers the first significant downward redistribution of wealth over the past couple of decades and it is therefore supported by large sections of society. With the government also proposing to more than double the tax-exempt share of household income, raise the minimum wage and reduce the retirement age, so millions of people believe that their living standards will improve under the present government.
Another potential break with neo-liberalism is found in the government’s health care proposals. The Polish Health minister has revealed plans to reform the health care system, that if carried out could be the most important and progressive changes to have occurred in the Polish health care system over the past two decades. Firstly, the government says that it will significantly increase the level of public health care spending, aiming to raise it to 6% of GDP. Secondly, it plans to move from an insurance based system to one where the health care system is funded directly from the central government budget. This would be a move away from a Bismarkian style health insurance system to a Beveridge universal health care system. Around 2.5 million Poles currently find themselves without health insurance and this reform would therefore help to fulfil the clause in the country’s constitution, which states that health care should be provided free of charge by the state to all citizens irrespective of their income.
Support, Criticism and Left Alternatives
The Polish left faces a serious dilemma as to how it should respond to the economic programme of the PiS government. For whilst it must oppose many of the political reforms of the government, it is not so clear what its response should be to the new administration’s economic strategy. The left needs to distance itself from the liberal opposition to the government, by pinpointing those parts of the government’s economic programme that it supports, whilst developing coherent alternatives to those it does not.
Below I outline some of these quandaries:
The proposal of the government to tax banks and large supermarkets is a long overdue reform that partly addresses the privileged position of multinational capital. However, this tax will be difficult to implement as finance capital in particular is able to move relatively easily to avoid taxes. Banks and supermarkets may also choose to pass the cost of these taxes onto customers, with some banks already raising charges. Furthermore, international capital possesses huge political and financial clout to fight back against the government’s proposals. In a period of global uncertainty, the Polish stock-market has fallen by around 16% since October; the yield on 10-year government Eurobonds has risen by 80 basis points, and the Złoty has reached a 4 year low in relation to the Euro (http://tinyurl.com/gwg5s8c). These troubles have partly been caused by the decision of the international rating agency, Standard and Poor’s, to cut its rating for Poland from A minus to triple BB plus. This was a direct interference in the internal affairs of Poland, with the rating agency mainly citing political reasons for its downgrade (http://tinyurl.com/hpfjmmt). The left should be unswerving in its support for the government against these institutions of finance capital, which will place increasing pressure on the government to reverse its economic policy. If capital continues to flow out of the country and the currency continues to devalue, so dissatisfaction amongst the country’s urban middle class will intensify, whilst it could actually benefit Polish businesses and exporters. It is certainly not in the interests of the left to ally with international capital and sections of the most privileged sections of society in this socio-economic divide. However, much of the government’s opposition to international capital is simply rhetoric, with the Foreign Minister recently stating the government’s support for the Transatlantic Trade and Investment Partnership (TTIP), creating space for an alternative left voice on this issue (http://tinyurl.com/zfrnn56).
The PiS government’s strategy of national capitalism means that it will most likely support Polish businesses and wealthy Poles against the interests of the rest of society. For example, despite its attempts to tax banks and supermarkets it has made no proposals to reform the country’s income tax laws. Poland has an extremely low and regressive taxation system, which benefits the wealthy and high income earners. It is estimated that the government’ssocial reforms will cost around $11bln annually. A reform of the income tax system to increase and redistribute revenue is needed to fund such social spending and help reduce social inequalities. Also, whilst the government is focussing on international capital, it may turn a blind eye to the malpractices and exploitation of workers by domestic companies.
The social policies being introduced by the government signal some form of redistribution, for the first time in Poland’s ‘post-Communist’ history. It is not clear how far these policies will go and the left should be placing pressure on the government not to renegade on its promises on such things as health care and the minimum wage. Whilst the left must give critical support to the government’s policy of providing new child benefits, it is also important to point out the deficiencies in this policy. This benefit will leave many of society’s most vulnerable unprotected and without a combined policy of investing in such things as jobs, housing and public services, particularly aimed at increasing the activity rate of women on the labour market, it will almost certainly not increase the birth rate in the country. The left therefore has to support the introduction of a universal child benefit, which is part of a wider programme of social investment which offers an alternative vision of social and family life to the conservative one offered by PiS.
The economic programme of PiS is full of promises of new social spending but has no coherent vision of how the wealth will be created to fund it. An economic programme of the left should not just focus on consumption but also include a supply policy of growth through investment. The Polish economy continued to grow through the crisis, mainly through raising public investment, which as a share of GDP rose to the highest level in the EU (http://tinyurl.com/zvlvywf). This was made possible through the inflow of large EU funds, which were used to partly fund a series of infrastructural developments. The uncertainties in the international economy and the national capitalist programme of PiS, mean that private investment through an inflow of international capital is likely to decline. The left should lay out a new programme of public investment that goes beyond simply utilising EU funds, which themselves will begin to wane in a few years. This should be based primarily upon job creation, investment in green technologies and social investment in such things as housing and the health service that would both raise the rate of economic growth and improve the living conditions and standards of the population.