Poland successfully managed its integration into the European Union since joining in 2004, and during the 2008-09 global financial crises it was the only member to experience growth. Poland is a high-income country with a large and diversified domestic economy.
Read More »
A deficiency in reforms that could contribute to increases in innovation and competitiveness will slow the rate at which Poland is catching up to rich countries and the country may fall into a so-call... Show More +ed “middle income trap,” warns Ismail Radwan, Country Program Coordinator for the World Bank.Since transformation began, Poland’s economy has grown quickly, overtaking Western countries. According to the World Bank, over the last decade Poles have seen their income levels rise from 50% of the EU average to 75%. Not only is Poland now one of the richest of the new member states but it is also approaching the income levels of Southern Europe. The engines of this growth, which provided additional acceleration after 2004, are, for example, the efficient use of EU funds to increase investment (including the rapid development of infrastructure) and accelerated economic integration of the European market (an increase in trade).Growth continued throughout the crisis, while all other European nations dipped into recession. Poland was defined by the media – including foreign outlets - as the green island. But what are the special achievements of the Polish model? Poland’s growth has been equally distributed with the poor gaining faster than the rich and a confident middle-class emerging.Despite good results deeper analysis shows that current economic model needs updating. Otherwise, Poland may fall into the so-called middle income trap. This means that countries use their basic, economic engines of growth - such as a cheap workforce, the rapid increase of efficiency in the economy resulting from the import of technologies and know-how (the so-called informative model), and a manipulation of the exchange rate - to promote low or medium tier export. As a result, these countries 'get stuck' between countries that are poorer - and compete with low prices (e.g. China) - and those that are richer - and compete with innovation (e.g USA).Nowadays Poland is still a country that competes primarily with its prices. This model can still offer positive results over the next few years (a second round of funding from the EU will provide additional stimulus to the economy between 2014 and 2020). However, in the long term, neither a low-cost workforce or money from the EU can provide sustainable economic growth for Poland; this can give only come from the development of innovation and competitiveness in the country.Long-term projections predict that Poland will cease catching up with the most developed countries (like the USA) around 2030. Analyses by the OECD (2012) indicate that over the next 50 years the rate of growth of the Polish economy will be one of the lowest among OECD countries. Over the next 15 years, Polish GDP per capita will grow at a rate of about 2.3% per year. But gradually the rate will decrease – dropping to approximately 1.1% per year by 2030.Examples of countries that have achieved economic success and freed themselves from this trap are Finland, Ireland and South Korea. These are the countries with different economic areas and different cultural norms. However, there is a consensus among economists that they have one thing in common: they all launched an appropriate economic strategy that preserved innovation growth, leading them to become innovation exporters instead of importers. This innovation growth resulted in an increase in productivity, which has allowed them to maintain high economic growth and, consequently, catch up with the rich countries while avoiding the middle income trap.Poland has a great opportunity to utilize funds being granted by the EU budget for spurring innovation in the country over the next six years. Boosting support to the public sector with over 45 billion PLN can spur progressive development of innovation. By comparison, the total expenditure on innovation in Poland (both public and private) in 2012 amounted to about 14 billion PLN.There will not be another opportunity like this for Poland.However, this amount should be spent in the most efficient manner. Using this support from the EU in the same way as today would waste most this opportunity. A recent World Bank report critically analyzed the way the public system of innovation support works, offering insight into spending on innovation.The most important shortcomings of the current system include: the fragmentation of the resource distribution system (currently there are 24 public institutions in Poland that support innovation) and high aversion to risk among offices that grant subsidies for innovation. While the former reduces the efficiency of the system, the latter promotes the import of technologies and solutions from abroad.Meanwhile, the technological gap between Poland and the EU is narrowing and Poland should begin developing based on their own innovation. It is therefore necessary to increase funding for basic research - the product of national innovation. Show Less -