Poland’s stunning success should be discomforting for Britain

Poland Economy
Poland Economy

Have you noticed how much more difficult it is these days to get a Polish plumber, builder or other tradesperson? The reason is that fewer Poles are coming to this country to work than used to be the case.

Indeed, quite a few have gone home. The number of Poles in this country is now about 700,000, down from about a million at the peak in 2017.

Many people will doubtless blame Brexit for this change. Supposedly, Poles no longer feel welcome in this country and Brexit has put all sorts of barriers in their way. But Brexit probably has less to do with this than you might think.

The reasons for the changes in the number of Poles working in this country also include straightforwardly economic factors.

At the time of the fall of communism in 1989, Polish GDP per capita was about 40pc of the UK equivalent. It then dipped a bit, before recovering. In 2004, when Poland joined the EU and it was possible for Polish workers to come to this country without any restrictions, Polish GDP per capita was roughly 45pc of the UK level.

Today the figure is 80pc. The figures for real incomes and consumption per head will be broadly comparable.

This change has happened as a result of both the UK’s poor productivity performance and Poland’s own stunning success. Since the global financial crisis (GFC), the Polish economy has grown at an average rate of 3.4pc per annum. The equivalent figure for the UK is 1.7pc.

The result is that whereas Poles could once come here and, by working hard, were able to enjoy a better life while being able to send money home, now this is much more difficult. Many will be better off financially by going back to Poland.

How has Poland managed this? After communism collapsed in 1989, Poland underwent a policy of shock therapy. Initially, the economy contracted but not long afterwards it embarked on a path of sustained economic growth.

At first it did not seem likely that Poland would be among the most successful of the post-communist states of eastern Europe. Based on FDI flows, it seems that investors put their money on Hungary becoming the most successful of the former eastern bloc countries after the fall of communism.

Yet, whereas in 1991, Poland’s economy was 2.3 times the size of Hungary’s, today it is almost four times the size. Poland was the only European economy not to undergo a recession in the global financial crisis of 2007 to 2009.

Critics will say that it has benefited enormously from disbursements by the EU. This is true and, more broadly, membership of the EU greatly benefited Poland’s economic development. But much of Poland’s success has been down to its own efforts.

Similarly, they will say that Poland’s good performance is mainly because of the way that it has been able to piggyback off the success of German industry, particularly in car manufacturing, with many of the components in German cars sourced from Poland.

But this explanation only goes so far. After all, Poland has been outperforming other former communist countries in eastern Europe. Moreover, it has continued to do well even as Germany, and the German car industry in particular, have languished.

They will also say that it is easy to record strong growth when you start so far behind. This is true. But they said the same thing about Singapore as it grew rapidly, coming closer and closer to the UK’s per capita GDP. Yet it soared past the UK and shows no signs of stopping.

Similarly, although Polish growth has slowed a bit across the decades since the heady days, it continues to be pretty strong. In the second quarter of this year, Polish GDP was up over the previous year by 4pc, compared with 0.7pc for the UK.

None of this is to say that Poland doesn’t have its problems. Poland underwent a worse inflation shock than we did. Inflation in Poland peaked at 18pc, compared with 11pc here.

And inflation is still on the high side. In September it was 4.9pc, compared with our 1.7pc.

Fiscal policy also remains a worry. The government’s budget deficit has been running at about 5pc of GDP. Gross government debt is about 55pc of GDP. This may seem low compared to the UK’s figure of about 100pc, but this is quite high for a country that is still classified as an emerging economy.

Also, it has pretty consistently run a substantial deficit on the current account of the balance of payments. Mind you, so have we.

The truth about Poland’s success is discomforting, at least if you are British. The fundamental reason why Poland has been doing so well is that Polish economic policy has been very well managed and the country has had a habit of adopting the right policies to boost economic growth.

Sadly, that cannot be said for the UK which, under both Conservative and Labour governments, has recently had a habit of strangling growth through high rates of taxation and excessive regulation while tolerating high levels of worklessness and other areas of gross dysfunction.

The Polish prime minister, Donald Tusk, recently said that by the end of the decade Poland will have a higher income per capita than the UK. That may be a tad optimistic (for Poles, at least) but I wouldn’t bet against it.

In any case, if this marker is not achieved within the next six years, it may be within the next 10 if we do not significantly raise our game. Could we imagine British plumbers relocating to Poland? After all, many British builders relocated to Germany during its economic boom.

There are few better indicators of the scale of UK economic mismanagement, or of the scale of the challenge facing the UK government, than this adverse comparison with Poland.

Can the approaching Budget start a comeback? Over to you, chancellor.