There is great potential in Poland

Newsletter Posts / Contributions

Dr. Dr. Rainer Zitelmann
Dr. Dr. Rainer Zitelmann

Some time ago, Jürgen Michael Schick told me that he was planning to expand his brokerage business into Poland. I remember the first time I became more deeply interested in Poland, its economy and its real estate market. That was 2002, when the real estate subsidiary of Deutsche Bank (which was called DB Real Estate at the time) launched the first closed-end real estate fund in Poland. The fund owned a shopping centre that was managed by Germany’s leading shopping centre manager, ECE, in Łódź, Poland’s third largest city. The fund had an investment volume of just under 100 million euros.

Prejudices against Poland

At the time, DB Real Estate was a client of my PR consulting firm Dr. ZitelmannPB. GmbH. We were tasked with explaining to German investors why investing in Poland made such great sense. This was not an easy task, because there were many prejudices against Poland at the time. At a sales event, one investor asked, “Do Poles even shop there, or do they just steal things?” I wasn’t amused, but that was a common prejudice back then.

We had a somewhat easier time back in 2006, when we did press work for another client, HGA Capital (a subsidiary of HSH Nordbank), for a fund that also invested in a shopping centre managed by ECE, this time in Gdansk.

And today, 20 years after I first explained the benefits of investing in Poland to investors, how are the country and its real estate market doing? A lot has happened in the intervening years! Poland is now one of the most economically successful countries in Europe and has been enjoying strong economic growth for decades. But in socialist times, Poland was one of the poorest countries in Europe. In 1989, a Pole earning $50 a month had only one-tenth of the salary of an average German, and even then, when adjusted for purchasing power, the value of a Polish worker’s take home pay was one-third of that of a German employee. Poles were poorer than Ukrainians at the time, and GDP per capita was only half that of Czechoslovakia. Inflation in Poland was 260 per cent in 1989 and 400 per cent in 1990. Poland was the only country in the socialist Eastern Bloc that formally went bankrupt.

Socialism ruined the country

As late as 1910, the average income in Poland was 56 per cent of that of a Western European. But by the end of the socialist era, which spanned the years from 1945 to 1990, incomes had fallen dramatically: By 1990, a Pole earned only 31 per cent of the average salary in Western Europe.

However, through a consistent programme of capitalist reforms, the standard of living in Poland has risen considerably and, by 2016, had reached 57 per cent of the level of Western Europeans, whose standard of living had risen considerably after the war. Across all income groups, Poles have benefited from capitalism.

In his excellent 2018 book, Europe’s Growth Champion, Marcin Piatkowski states: “Yet, 25 years later, it is Poland that has become the unrivalled leader of transition and Europe’s and the world’s growth champion. Since the beginning of post-communist transition in 1989, Poland’s economy has grown more than in any other country in Europe. Poland’s GDP per capita increased almost two and a half times, beating all other post-communist states as well as the euro-zone”.

But not only has the standard of living in Poland improved enormously, so has the environment. Contrary to the claims of anti-capitalists that capitalism is responsible for environmental degradation and climate change, the example of Poland shows that the opposite is true. Energy intensity, i.e., the ratio of energy consumption to gross domestic product, halved in the years from 1990 to 2011. And the increase in CO2 emissions in Poland has now decoupled from the increase in gross domestic product. Capitalism is not the problem, it is the solution – both in relation to improving living standards, as well as to protecting the environment and mitigating climate change.

How did Poland manage this and why has Poland been more successful in the transition to capitalism than other former socialist countries? One of the main reasons was that the country’s capitalist reforms have been more far-reaching and implemented more quickly: It is not only Poland’s economy and institutions that have changed, so have people’s thinking and behaviour.

Capitalist shock therapy has done its job

And as so often in history, it is important not to underestimate the commitment and influence of certain individuals. First and foremost, there is former Finance Minister Leszek Balcerowicz. A liberal economist, Balcerowicz was Finance Minister in Poland’s first democratic government, which was elected in 1989. He was also Chair of the National Bank of Poland (2001–2007) and twice Deputy Prime Minister of Poland (1989–1991 and 1997–2001).

Balcerowicz developed a programme of capitalist reforms that was later called “shock therapy”. Piatkowski wrote: “The reform programme was among the most radical economic reform programmes ever implemented in peace-time in global history”.

It is in the nature of such reform programmes that they initially lead to a temporary deterioration of the situation, lasting perhaps two years, but Poland was more than rewarded for its perseverance, as Balcerowicz’s programme enabled Poland to become the first former socialist country to return to economic growth in 1992 and laid the foundations for the country’s later economic success.

Like Margaret Thatcher, Leszek Balcerowicz was a follower of staunchly free-market thinkers such as Friedrich August von Hayek and Ludwig von Mises. Poland is an outstanding example of just how successful these ideas, often dismissed as “neoliberal”, can be. One can only hope that the people of Poland do not forget the reasons for their economic success. And even the Germans, who 20 years ago did not understand why it was a good idea to invest in Poland, have probably changed their minds by now. I wish Jürgen Michael Schick every success in Poland!

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