25 Years of a Free Market
June 3, 2014
Major socioeconomic changes have taken place in Poland since it shook off communism 25 years ago, yet the country still has a long way to go before it catches up with the wealthiest members of the European Union.
A process of fundamental political, social and economic changes began in 1989 when the country held its first free elections after World War II. As a result, Poland became a market economy open to international cooperation. Among the biggest achievements of the last quarter-century was that a new vibrant private enterprise sector was built in Poland relatively quickly and almost from scratch, and that legal and institutional reforms were introduced to support the economy. Such reforms enabled Poland to join the European Union.
Another of Poland’s economic successes was that it managed to avoid a public finance meltdown and a crisis in the financial sector comprising banks, investment and pension funds, insurance companies and the stock market. Poland steered clear of the kind of banking and finance crisis that was experienced, for example, by Russia in 1998. Thanks to factors including efficient banking supervision, Poland also weathered the global financial crisis than began in 2008 relatively unscathed. A notable success was that the country managed to attract substantial foreign investment. In 2012, the cumulative value of foreign direct investment in Poland was estimated at nearly 178 billion euros.
Economists tend to highlight a number of significant changes that took place from the summer of 1989 to the present day. For example, in August 1989 the exchange rate of the dollar was so high that the average monthly salary in Poland was about $20. By the beginning of 1990 this had grown to around $100, and today the average monthly salary in Poland is well over $1,000. From August 1989 to February 1990 prices grew at a rate of about 30 percent a month. Exports were small, the country’s foreign debt was enormous and largely left unserviced, and the official foreign exchange reserves were marginal.
Poland’s GDP has grown at an annual average rate of about 4-4.5 percent during the last 25 years. Though impressive, this growth is not as fast as in many countries in Southeast Asia in 1950-2000, or in Ireland in the 1990s, for example.
The most vivid measure of the country’s success in the last quarter-century is the rise in GDP per capita. Few people today remember that back in 1989 Poland was one of the poorer countries in the Eastern bloc. This poverty was reflected in Poland’s GDP per capita, which was just over $6,000 in those days, according to current estimates, while Hungary, Slovakia, Lithuania, Latvia and Estonia reported per capita GDP levels well over $8,000.
IMF estimates show that in 2014 Poland ranks 49th worldwide by GDP per capita in purchasing power parity (PPP) terms. Poland’s per capita GDP is expected to reach $22,200 by the end of the year. This growth is good news, but it is necessary to remember that this is still not much compared with other countries. According to Eurostat, the European Union’s statistics office, in 2012, Poland’s per capita GDP was 66 percent of the EU average, ranking the country fourth from the bottom in the EU.
Another success is that a vibrant capital market has developed in Poland and that privatization has been a key driver of the economy. The Warsaw Stock Exchange is a symbol of the capital market, one of the greatest achievements of a free Poland. Today the WSE is the largest stock exchange in Central and Eastern Europe and one of the fastest growing stock markets in Europe. Almost 900 companies are listed on the WSE, and the exchange’s members include more than 50 institutions, both domestic and foreign. In 2013, the average volume of trading per session on the WSE’s main market was zl.891 million.
The WSE would not have been able to develop were it not for the free market economy and the enthusiasm of citizens, who took an active part in economic changes in the country. The stock exchange has become an important source of funds raised by Polish companies and contributed to a diversification of people’s savings. The WSE has also become an effective tool for promoting the Polish market internationally.
Yet another success for Poland is that the country’s higher education system has expanded extraordinarily—to a large extent thanks to the expansion of the private sector. The development of the higher education system has led to the emergence of a large number of employees with new skills in areas such as management, foreign languages, finance and information technology. The number of students has grown impressively in recent years. In the 1990/1991 academic year 404,000 students were studying at universities nationwide. Today the figure is more than four times as high.
Visible progress has also been made in infrastructure. Prior to 1989, Poland had 224 km of freeways. Today it has 1,513 km of freeways and 1,353 km of expressways. Even more far-reaching changes have taken place in sports infrastructure. Since 1994, more than 3,000 sports facilities have been built and renovated in Poland. The country’s entry into the European Union and the possibility of obtaining co-financing from the EU for the construction of sports facilities, combined with the country’s economic growth and the hosting of major sporting events such as the Euro 2012 soccer championships, have led to the intensive development of sports infrastructure in Poland in a trend that continues to this day. Some 10,000 sports facilities have either been built or are under construction throughout the country. These include modern swimming pools, gyms, indoor and outdoor ice skating rinks, soccer and track-and-field stadiums and multifunctional sports fields in almost every municipality.
Despite the huge progress made, many important problems remain to be solved. Poland is still lagging behind the West in terms of the quality of public infrastructure and the size and quality of the housing stock. A significant part of the work force still lives in the countryside and small towns. The energy sector is technologically obsolete. Measured by German, French or British standards, Poland is still far from an industrial or scientific powerhouse. The good news, however, is that it is continuing to develop.