Poland And The EU: Happy Precedents?

Nick has a quicklink to a piece in Business Week which is worth the read. One passage in particular struck me:

There are precedents for a happy entry into the EU from which Poland is trying to learn. Spain boomed after joining in 1986 because successive governments spent the funds they received from the EU shrewdly, restructured state finances successfully, and continued to liberalize and deregulate the economy. The results were rapid growth, rising living standards, and, after a period of painful restructuring, lower unemployment. Spain’s per capita GDP is now about $22,500, almost 90% of the EU average. Polish GDP per capita, in contrast, is less than $6,000. “If we could do what the Spanish did, I’d be very happy,” says Janusz Onyszkiewicz, senior fellow at the Center for International Relations in Warsaw and a former Defense Minister.

I’ve already been having a bit of a problem this week with simplistic arguments: looks like I just found another one.

Spain most certainly did benefit enormously from joining the EU. Whether or not they spent the EU structural funds ’wisely’ is a rather tendentious point, but one which is without great importance here. The central point is that these two nations are in no way comparable historically in their moment of accession.

In 1986 Spain was facing what the UN calls the demographic ’window of opportunity’. That is the fertility rate was dropping sufficently for savings rates to rise, but the pyramid structure was still sufficiently sound for a large supply of cheap labour to keep arriving on-line.

At the same time Spain was able to make the transition from fairly low productivity agriculture to relatively higher productivity industry, and, leveraging all that cheap labour, develop a development model out of being a sort of ’Mexico’ for the EU.

Now this prospect is simply not available for Poland. The demographics are completely different, Poland has low fertility and a rapidly ageing population. It is a population where many are arriving towards retirement age with precious little in the way of accumulated wealth, and thus where the fiscal deficit can only be reduced sharply by threatening the elderly with increasing poverty.

OTOH the arrival of China and other developing economies on the global scene means the old ’Mexico’ model is increasingly questionable. Poland can compete with China, but it cannot do this and increase per capita income significantly. It faces a different kind of ’poverty trap’ here.

Indeed this ’trap’ once entered, may be difficult to break out of, as the Portuguese and the Spanish are now discovering. Meantime, as the BW article explains, there are really two Polands, and one of them is already much more dynamic than the Spanish ’role model’. Just an anecdote: listening to the radio last night I learnt the surprising fact that the Polish enterprise already invests a higher percentage of net earnings in R&D than the Catalan equivalent does, and the Catalan enterprise, it should be noted, has a much better performance in R&D than the Spanish average. That is to say that one of the two Polands may do much better in the ’value added’ activities than any of the Mediterrenean 3.

One other little detail: there are apparently 100,000 blogs in Poland (see this, and this ). Poland may in fact be the fourth country in the world blog rankings. This may not be entirely devoid of significance when thinking about Poland’s future.