Mythology of Polish economy

1. Mythologyof Polish economy Anna Fiedorowicz The West Pomeranian Business School in Szczecin Poland afiedorowicz@zpsb.szczecin.pl

2. OPTIMISM versus PESSIMISM • Opinion I: „It is good and it will be even better” • Opinion II: „It is bad and it will be even worse”

3. Myth 1 Economic system in Poland is based on the rule of “social market economy” - art. 20 Constitution of Republic of Poland

4. SOCIAL MARKET ECONOMY Social market economy is a form of economy, developed in The West Germany in 40-ties, based on Muller-Armack and Ludwig Erhard. Social market economy is based on the concept of free market economy and at the same time extensive social support. So called „third way” – compromise between capitalism and socialism. Social market economy join: • political democracy • economical effectivness • social justice

5. Adam Smith (1723-1790) John Maynard Keynes (1883-1946) SMITH or KEYNES – who was right?

6. Smith – liberalism protagonist • liberal concept of the country which refers directly to an idea of state as a “night watchman”, who keeps the order without interfering in freedom of economic activity. Economic activty is regulated by “invisible hand of the market”.[1] • According to this concept, state regulates general condition of the country (legislative function) and support safe and undisturbed market activity • Role of the“regulator” of economic activity should be played by market (market mechanism), as a cheaper and more effective tool. [1]Expression used by Adam Smith – representative of liberal economy. A. Smith,“ An Inquiry into the Nature and Causes of the Wealth of Nations”.

7. Keynes - interventionism • interventionist concept of the country assumes that state does not have to but can be active player of the economic life, not only because of social purpose, but also from economic reasons. • State should be the integrator of economic processes which assures growth and social welfare in conditions of full employment. • General idea of interventionism followers is criticism of market mechanism in the process of economic growth. As they assume: “ ... market as a formation exposed to fluctuation of economic conditions does not quarantee continiuous economic growth”. • State economic policy, should’t be incydental. It should be fixed element of market economy.

8. Myth 2 Reacher economy - reacher society.

9. +/- Transfer payments, income from capital, profits GDP NDP NI PI DI National Income Account depreciation Indirect taxes Personal taxes ?

10. Polish relations • In Poland Disposable Income (DI) constitutes 35% of GDP • In USA – about 70% • In Japan – about 72% • In Norway – about 80%

11. We are not enriching at the rate of economic growth. GDP per capita growth rate Income per capita growth rate Difference between indicators Source: Central Statistical Ofice in Poland

12. GDP per capita ‘2007

13. Myth 3 Succesive governments promise faster growth “In the perspective of 10 following years we will double value of GDP” Hanna Suchocka’93

14. To double scores 10 years  change by 100% Annual growth rate about 7,8 %

15. Our growth rate

16. GDP – growth rate ‘2007

17. Myth 4 We can stay second Japan?

18. Or rather second China? Source: World Bank, European Comitee, Economic Forecast, April 2005

19. Myth 5 We should’t have cool down economy Oponents of Balcerowicz’98

20. Positive news- inflation is decreasing Price dynamics of consumption goods and services previous year= 100 december to december

21. Inflation rate

22. Theory of business cycle boom recession recovery depression Single business cycle

23. Experience of great economy Long - run business cycle in USA

24. Goals of stabilization policy • Flatten aplitude of economic fluctuation • Prolong phase of positive growth - at he stable level (for example in USA planned 3% , in EU – 2%) • Shorten negative growth phase

25. Myth 6 Cost of antyinflation policy is unemployment.

26. Inflation rate Unemployment rate Dilema: inflation or unemployment Phillips curve

27. Unemployment rate

28. Myth 7 Poland can not afford tax decrease.

29. What level of taxes ??? tax stakes Laffer’s curve 15%-25% of GDP Black economy X MAX budget inflows

30. Tax stakes versus budget inflows

31. What kind of taxes?

32. EUROSTAT – taxes (PIT)

33. Fiscal burden and economic growth rate

34. Myth 8 Interventionism and budget deficyt can boost economy

35. Are there any limits of spending money that we don’t posess? • According to monetarists(Milton Friedman – Nobel Laureate) – budget deficyt should not exceed 5% of GDP. • According to convergence criteria (Maastricht treaty) – 3% of GDP • According to Polish government economists – we can still increase it

36. EU criterion Budget deficyt ( in % GDP)

37. Budget deficyt ‘2006

38. Myth9 Public debt induce economic boom

39. EU and constitutional criteria • According to constitution public debt can not exceed 60% of GDP • According to public finance act – safety tresholds is equal to 55% of GDP • According to Maastrich criteria– 60% GDP

40. Public debt ‘2006

41. Thank you for your attention