Sunday, 19 December 2010

The Scourge of Unemployment

In the early morning on 14th October on the outskirts of Warsaw, 18 unemployed people were squeezed into a van and driven to illegally pick fruit . The small van was not designed to carry people but goods. The passangers were seated on wooden boxes and planks without seatbelts. All 18 died after the van collided head-on into a truck. The incident highlighted the desperate conditions that millions of Poles live in and the exploitation they face when they try - often illegally - to earn some money. The major cause of this poverty and desperation is the extremely high level of unemployment, that has been a constant feature of life in postsocialist Poland.

In 1988 there were 21.8m people of working age and 18.2m of these, 83.5%, were in paid employment. 14 years later, when unemployment was at its peak, the number of Poles of working age had increased to 23.6m although the numer of these working had decreased to 10.4m, i.e 56%. Around 1.2m of these were students meaning that around 9m Poles of working age were neither working or studying. During some years, throughout the past 20 years , unemployment has reached 20% - two and a half times the OECD average. The average rate of unemployment during the past two decades stands at 14.3%.

During the past 20 years the unemployment rate has undergone periods of increase and decrease. These can broadly be categorised into five phases:

1. 1990 - 1993: Following the introduction of the shock-therapy reforms and the mass closure of state industries and farms. By the end of 1993 2.9m people were unemployed.

2. 1994-1997: The SLD-PSL government introduced a more interventionist policy and slowed the economic reforms. Unemployment fell by more than one-million and by July 1998 around 1.7m people were unemployed.

3. 1998 - 2004: Unemployment went through a huge surge - especially during the period of the AWS-UW government when new liberal economic reforms were introduced. By the end of 2000 2.7m people were unemployed, which increased to 3.2m by the end of 2002. Between 1999 and 2001 almost 2000 jobs were lost every working day.

4. mid-2004 - mid-2008: The number of unemployed fell from around 2.9m to 1.5m. This was caused by an upturn in the Polish economy following entry into EU. Most importantly was the fact that around 2m Poles - mostly young - emigrated to Western Europe.

5. mid-2008 - now: Since 2008 unemployment has begun to rise again. This is due to the effects of the economic crisis, which have induced an economic slowdown and also reduced the possiblities of Poles finding work abroad. Unemployment presently stands at 13%.

The major cause of poverty in Poland is caused by this high unemployment rate. This is compounded by the fact that only around 1/7 of the unemploymed in Poland receive any benefit. The level of unemployment benefit is extremely low - 601 zł a month, when the minimum social level of existence is estimated at 900 zł. Around 30% of the unemployed have an income below 351 zł a month - which is regarded as the minimum level for existence.

However, the specture of unemployment that haunts Poland is not just a social disaster but is also one of the major barriers to the country's further socio-economic development. If we accept that it is labour and its creativity that creates wealth then we can understand how the inactivity of such large numbers of people is not just a social disaster but also economic madness. Unfortunately the neo-liberal ideoglogues, who tend to dominate economic debate, postulate that the 'natural' unemployment rate is around 8-10%. Even when this figure is not met, then the blame is placed upon the unemployed for their condition, such as their inability to psychologically or culturally adapt to the demands of a market economy (Homo Sovieticus).

Such thinking was able to find some resonance at the beginning of the transition - when unemployment was primarily caused by the closure of state industries and farms. During this time it was claimed that this was a temporary phase and that once the private sector had managed to grow unemployment would fall. The continuation of unemployment could then be explained by the fact that these ex-state workers had been unable to sufficiently adapt themselves to the new reality. However, high unemployment in postsocialist Poland is not a temporary result of the closure of state firms nor can it be explained by the psychological failings of individuals brought up in a different system. Nowadays unemployment is structural and affects different sections of society including the young and educated.

In March this year there were 451,000 people under the age of 25 who were registered unemployed. Furthermore, 17% of these were graduates, with 22,000 new graduates unable to find work. One of the great successes of the transition has been the rise in the number of young people going to university. However, the inability of many of these to find work is wasting the energy and skills of some of the most able people in society. This threatens a new wave of emigration out of the country.

Public debate in Poland is presently dominated by the state of public finances and the need to bring down the deficit. This often focusses on issues such as raising the retirmement age. However, the major structural problem in Poland is the huge numbers of people without work. Attention should therefore be focussed on reducing the once again rising unemployment rate and finding work for those of working age, particularly the young. The returns in taxation (both indirect and direct) would be the surest way to control public finances and sustain a course of economic growth.


Some of the information for this article was taken from an interview with Mieczysław Kabaj from the Institute of Work and Social Affairs.

Thursday, 16 December 2010

Kapuściński's Biographer Wins Polish Journalist of the Year


The surprise winner of the 2010 Polish journalist of the year is Artur Domosławski. He won the prize for his excellent biography on Ryszard Kapuściński. This book was particularly significant for the way it not only portrayed the life and work of a great writer and intellectual but also how it objectively and critically analysed the communist system from a modern progressive left-wing standpoint.

Domosławski has also come to be known as a prolific journalist writing about international affairs - particularly events in Latin America. If I was to have one gripe it would be that he writes very little about what is occurring in contemporary Poland. Perhaps in this sense he is similar to his mentor Kapuściński and it is a sign of how in modern Polish society it is still sometimes easier to write critically and progressively in the mainstream press about things happening in other countries.

You can find the review I wrote about Domosławski's 'Kapuściński - Non Fiction' here.

Friday, 10 December 2010

The Words of a Liberal?




PO's attempt to present themselves as the progressive liberal alternative to the conservativism of PiS has always been dubious. This has particularly been the case when it comes to President Bronisław Komorowski. His 'aristorcratic' background, activity within the conservative wing of the opposition movement during Communism and his declared love of hunting do not identify him as being your typical 'progressive liberal'. These are somewhat offset by his membership of the Democratic Union and Freedom Union in the early 1990s. However, Bronek's liberalism was always more economic than cultural or social.


Old habits die hard, and in a press conference this week with Barak Obama - during his visit to the United States - Komorowski revealled his conservative and outdated opinions when he said:
' If we have to go on a large hunt away from our home, then first we should ensure that our home, our women (sic) and our children are safe. Then we can hunt better.'


Using analogies of hunting and sport when referring essentially to wars in which 100s of thousands of lives have been lost is distasteful in the extreme. Furthermore, his out of date paternalist attitude of protecting 'our women' shows how Komorowski remains a relic of another time. His election slogan was 'we are building Poland'. But what Poland? One where the women tend to the home while the brave men go out to hunt.


During his visit to the USA, Komorowski heaped praise upon the USA - as the beacon of democracy and freedom. All this in the week of the wikileaks revelations and scandals. A progressive indeed.

Wednesday, 8 December 2010

The Hungarian Budget - An Alternative Way?

On the day that Ireland announced an austerity budget that included cuts of unprecedented proportions, Hungary agreed its own budget which offered different solutions to reducing its deficit.


Hungary has been one of the countries worst affected by the global financial crisis. In 2009 GDP fell by nearly 7% and it was one of the first countries to turn to the IMF and EU for financial aid. As a condition of the loans provided by the IMF and EU, the previous Hungarian government was compelled to introduce new austerity measures. Furthermore these came in the wake of the Hungarian government having already reduced its budget deficit from 9% to 3% between 2006 and 2009. Combined, these policies led to the collapse of the unpopular Socialist led government and to the creation of a right-wing administration led by the Fidesz Party, under the leadership of Viktor Orban.


The Hungarian economy has gone through a series of turbulations since the collapse of Communism in 1989. Initially it was declared as the model for emulation as it rapidly opened itself up to the world economy and sold off huge chunks of its industrial and financial sectors to foreign buyers. By the late 1990s, foreign capital's ownership share had reached 63% in telecommunications, 51% manufacturing industry, 36% retail trade and 44% financial services The proceeds from these privatisations were used to fill the public coffers and to maintain political compliance through sustaining social spending. When these privatisations began to slow and the inflow of foreign capital reduced then the imbalances within the Hungarian economy were revealled. In 1998 Hungary underwent a financial crisis as capital flowed out of the country. This was largely as a result of the repatriation of profits by foreign owners and the lack of funds from privatisations after the country's most desirable assets had been sold.


At the beginning of the present crisis in Hungary, the Forint underwent a huge devaluation - falling by 15% alone between October 2008 and February 2009. This again was a consequence of an outflow of captial from the country and helped to instigate a sharp downturn in the economy. A devaluation in the Forint was particularly painful for Hungary as huge numbers of personal loans had been taken out in foreign currencies (particularly Swiss Francs).

The overbearing dominance of foreign capital in Hungary meant that it became the source of frustration for those disastisfied with the realities of contemporary capitalism. This has particularly been the case during times of economic crisis. The involvement of the official left, around the Socialist Party, in pushing through this course of reform has meant that opposition has tended to come from the right. This has allowed for the nationalist-right, primarily around the Fidesz Party, but also with more extreme right-wing versions such as the Jobbik Party, to articulate an 'anti-reform' agenda based upon nationalism, sometimes racism (particularly towards the Roma community) combined with an anti-market/globalisation rhetoric.


The government showed its intentions shortly after coming into power when it announced that the public debt it inherited was actually bigger than it had thought and that it may default on its repayments. This again pushed down the currency, raised the cost of borrowing and ended up with the government soothing the international markets by stating that these claims had been 'unfortunate'. If this was a way of testing the water, then the new administration certainly learnt that it was hot. They have since agreed to comply with the demands laid down by the IMF and EU, to meet their debt repayments and to bring down their budget deficit in line with expectations. How they plan to do this, however, differs from that being carried out in most other European countries.


This week's budget includes plans to introduce large taxes on banks and other firms alongside its decision to bring $14bn in privately held pension assets back into government hands (see previous post). According to the government's calculations this equals around 4.4% of GDP and should help to bring the budget deficit down. At the same time the government has continued with its own public spending cuts, although these are less than in many other countries. In this budget it has also decided to launch a 16% flat personal income tax and a 10 percent small business tax.


It is likely that these policies will meet some positive social appoval as they seem to punish the culprits (large, foreign capital), partially protect public spending and reduce the tax level for local businesses and individuals. The budget seems particularly designed to meet the approval of the middle-class and local small/medium busniesses. However, the government is trying to balance something that perhaps cannot be balanced. The budget does not include a programme of investment in the economy - which ultimately is the only way for the economy to grow. If economic growth slows then its attempts to meet its budget targets will fail. Despite its rhetoric the government is suppressing public spending and meeting the draconian demands of its international creditors. Also the danger exists that it will take individual pension assets out of the pension funds (an action that is wholly rational and justified) but use them to temporarily fill its budget deficit. In this way bodies such as the EU will be pacified through drawing upon the savings of millions of Hungarians.


The solutions being proposed by the Hungarian government are certainly different from those being introduced in countries such as Ireland. However, they do not add up to a coherent alternative solution to the crisis facing many countries on Europe's periphery and carry with them some dangerous ideological undertones.

Tuesday, 7 December 2010

The On-going Crisis in Private Pensions

In a previous post I wrote about the scandal surrounding Poland's private pension schemes. This had been caused by the growing realisation that these private funds were not delivering on their promises. Rather than managing to valourise Polish pensions they have proved to be an elaborate method of passing public money to private companies. The new pensions being paid by the private funds are miserly, even compared to the state-pension, whilst the profits of these companies have been huge. Furthermore, with the government coming under increasing internal and external pressure to bring down its public debt, attention has begun to focus on how passing huge sums of taxpayers money to the private pension schemes is contributing to this burgeoning debt. The defenders of this system are of course now coming out in force to predict Armageddon if anyone dares to interfere with these schemes.

The privatisation of part of the pension system in Poland was introduced by the then Finance Minister Leszek Balcerowicz. According to his adviser, Ryszard Petru (who had responsibility for drawing up the reform), it was brought in with two main purposes in mind:

1. To change the manner in which pensions are counted. Instead of offering a pension at a guaranteed level, it was now to be dependent upon payments and how investments fared on the stock-market. This was introduced in order to encourage people to work longer and harder.

2. To break the monopoly of the state in organising these pensions and create new financial bodies with a steady source of funding. These could then act as long-term investors in the Polish stock-market and be participants in future privatisations.

As an aside, Petru also argues that in the mid-1990s they estimated that the worth of state property that could be privatised would be enough to pay for the debt caused by payments to the pension funds. He then bemoans the fact that the funds from privatisations (which rapidly speeded up during the term of the government he served) were wasted on other things. Now, there is a case against the short-sighted policy of successive governments to sell off state assets to cover their deficits (the present administration is one such culprit.) However, to suggest that such public property could have been sold in order to cover payments to private companies is breathtaking in its cheek.

You will notice that no attention was paid to improving future pensions, despite the huge propaganda of how these would grow on the stock-market. To be honest it would not surprise me if people such as Petru were so blinded by their own ideology (that was particularly prevalent in the 1990s) that they believed this propaganda themselves. Private good, Public Bad - Four Legs Good, Two Legs Bad.

The model for the pension reform in Poland, which was emulated in a number of post-communist countries in CEE, came out of Latin America a few years before those in CEE. Pensions were privatised first in Chile and then in a number of other Latin American countries, including Argentina and Bolivia. The failure of this privatisation to improve pensions and its negative impact on public finances meant that some Latin American governments have returned to a state system.

The first such example was in Argentina, when in 2001 the government confiscated around $3.2bn of pensions' savings before the country stopped servicing its debt (an action that saved the country from economic ruin.) Then in 2008 the government fully nationalised the private pension system (which carried around $25bn in funds) in an attempt to protect retirement investments from the international financial crisis. The government then promised to pay out a set amount to pensioners, with the state social security agency pledging to protect the value of people's investments.

Also, earlier this month, the Bolivian parliament agreed to nationalise the country's pension-fund system that had been created in 1996. The private pension system was declared a failure, by the Bolivian President Eva Morales who signed the bill. Simultaneously a law to lower the retirement age to 58 for men and women (life expectancy in Bolivia is just 65 for men and 69 for women) was also passed, alongside a plan to raise social benefits.

The crisis in the private pension system is now leading governments in CEE to reconsider these schemes. Last year Lithuania reduced contributions to its private funds; in April 2009 Estonia declared that it would freeze pension-fund contributions until the end of the year and in Bulgaria 20% of private vocational pension funds will put their assets under state control until 2014. For weeks now in Poland there has been an ongoing debate (within the government and the media) over the future of the private pension funds. This was sparked by comments made by the Minister of Labour, and supported by the Finance Minister, that part of the payments made to the private pension funds should be taken back and given to the state social insurance scheme. It was also suggested that individuals should be allowed to resign from the private system and pay fully into the state system. This led to divisions and uncertainty within the government, with some vehemently defending the private pension funds. The latest unconfirmed proposal to come out of the government is to reduce payments to pension funds from 7.3% to 5% (i.e. from ZL24bn to ZL16m) and that these payments would not be paid in cash but in long-term pension bonds, which would eventually be bought back by the government.

More drastic measures are being taken by the Hungarian government. Last month it announced that individuals must decide whether they want to invest in the state or the private pension system. Around 3 million workers in Hungary invest some of their pension contributions in private schemes. Those that choose to remain with the private pension system will lose their right to draw their future state system. This will almost inevitably result in the vast majority of people moving back to the state system, leading to the collapse of the private pension funds. Commentators have declared a de-facto nationalisation of the private pension’s schemes, that are worth $14.6bn.

It is not difficult to see that the issue of public debt, swelled by the financial crisis, is the immediate cause of these measures. As much as anything, this is being driven by external pressure from the EU on countries such as Hungary and Poland to rapidly bring down their budget deficits and public debt. However, the EU rebuffed a request last month, from 9 EU members (including Hungary, Poland and Sweden) to discount from deficit figures the amount given to these private funds. Pressure has come from the EU for member states not to move away from the private pension system, with the EU commissioner for economic policy and finance saying: 'it is key that those countries that have introduced pension reform do not withdraw from it.' Whether the EU will decide to compromise on its position not to discount the transfers to the private pension funds from the deficit - in an attempt to save the system - is to be seen.

The potential collapse of the private pension systems in countries such as Poland and Hungary (as well as Argentina and Bolivia) is a sign of how the private sector is no longer able to deliver on the promises it made during the heady days of the 1990s. However, a question-mark remains over what will happen to the large amount of sums that had been transferred to these funds if they are to return to the government. As noted above, the governments of Argentina and Bolivia are using these to guarantee future pensions. However, in Hungary and Poland the impetus is to fill budget gaps and meet the obligations being set down by international institutions such as the IMF and EU. The primary concern for any government, when considering pension reforms, should be how to best provide pensions for its citizens. The private pension funds have failed in this and it is right to change this system and bring money back into government hands. However this should be done in order to more efficiently and safely use people's money so as to guarantee a decent pension in the future.


Friday, 3 December 2010

The Threat to European Unity


There should be no doubt about the seriousness of the present crisis in the eurozone and the European Union. Not only does it threaten the very existence of the euro but it also raises the question about the future viability of the European Union, at least in its present form. The fallout from the global financial crisis has shaken the European economies, further fragmenting the EU into competing blocs with differing interests. A danger exists that European unity will be broken through the richer states breaking from the ideals and practices of cohesion and solidarity that have underpinned the project of European convergence.


There are two major elements to this:


1. CRISIS IN THE EUROZONE


Since the outbreak of the global economic crisis, from the end of 2007, public debt has increased in the EU member states by over 25%. This is a direct result of the economic contraction within the European economies and the huge sums of money that governments have spent bailing out the very financial institutions that were responsible for the crisis.

The effects of the economic crisis have been most sharply felt in the economies on the periphery of the EU, which were most dependent upon an inflow of foreign capital and credit – e.g. the Baltic States, Ireland, Greece, Spain, etc. Those countries that were also members of the eurozone, or had their currencies tied to the euro (such as in Latvia or Estonia), have been worst affected. They have been unable to devalue their currencies, in order to help boost exports, and they are now coming under intense pressure to bring down their budget deficits and levels of public debt, to meet the previously defunct criteria laid out in the Growth and Stability pact. In turn their national governments are compelled to introduce new austerity measures – which only serve to further depress economic growth.

After first striking Greece, the European Central Bank’s ‘shock-doctrine’ has now reached Ireland. The ECB had previously lent the Irish government €100bn, as it had been unable to support its own own banks after being starved of cash due to the very low corporate income taxes in Ireland and the dramatic collapse in its property market. The latest loan to the Irish government is worth €85bn, although it is not clear that this will be large enough to repay all the creditors. All this in a country that was the neo-liberal poster-boy of Europe and whose economic model had been praised as one for emulation by the Polish PM, Donald Tusk, and British Finance Minister, George Osborne.

With most of the bailout money being provided by the EU’s richer countries - particularly Germany, but also the UK - one may think that this shows how the ethos of solidarity within the EU remains strong. However, this loan is being given at a punitive interest rate of 7%, which will therefore see the new creditors receiving a healthy return on their loan. British banks already have £140bn worth of loans in the Irish banks, meaning that it is in the British government’s direct interest to protect them from collapse. All of the money included in the current bailout goes exclusively to these banks and not a cent is being used to invest in the economy, save jobs or protect the country’s ailing public services. In fact the opposite is the case. The bailout has been granted with the proviso that the Irish government introduces a new austerity programme that will cut welfare entitlements, reduce the minimum wage, shrink public sector pay and jobs and slash spending on health (by 7.5%) and education (12%). No wonder that political forces who are offering an alternative economic programme in Ireland are on the rise.

The real fear now is that this crisis will spread to other eurozone countries in Southern Europe, such as Portugal and most worryingly Spain. However, non-eurozone countries in Central-Eastern Europe, such as Poland, are also being affected by this crisis. The latest events in Ireland have resulted in a sharp fall in the Polish zloty, even in relation to the euro. Investors are afraid to locate capital in government bonds in ‘developing’ European countries and are moving out of countries such as Poland. These governments are under intense pressure, from financial markets and the EU, to reduce their budget deficits and public debt. For example, the EU is pressuring the Polish government to bring down its budget deficit from its present level of near 8% to 3% by the end of 2012.

CEE countries such as Poland, that stand outside of the eurozone, now find themselves in a catch-22 situation. On the one hand being outside of the eurozone gives these countries more economic flexibility and the currency devaluation helps their competitiveness. The lure of eurozone entry does not seem as attractive as it once was (although it remains a stated aim of the CEE governments) and it certainly no longer offers the haven of financial security that it used to promise. However, the devaluation of the Polish Zloty is causing other problems – primarily by increasing the cost of debt. Millions of Poles have taken out loans and mortgages in foreign currencies (predominantly Swiss Francs) and any devaluation pushes up the cost of their repayment. Likewise the currency devaluation and rise in government bond yields are pushing up Poland’s public debt towards the dreaded 55% of GDP mark.

2. A REDUCED EU BUDGET?

The second potential schism in European unity is occurring over disagreements surrounding the EU budget. Immediately these have broken out over the size of EU expenditure in 2011. The proposal by the European parliament to increase this by around 2.9% was agreed by delegations from over 20 countries. However, such proposals have to be unanimously agreed within the EU and so far it has been blocked by an alliance of ‘netpayer’ countries, including the UK, Holland, Sweden and Denmark.

These clashes are just a foretaste of the conflicts that could breakout during negotiations over the size and composition of the next EU budget, that will run from 2014 to 2020. According to reports the UK is currently forming a coalition of net-payer countries with the aim of reducing this budget from the current 1.13% of EU GDP to 0.85% - i.e. by €250bn. These countries would like to set the agenda for the talks at the next EU summit in December – as the Presidency of the EU will be held by Hungary and Poland (i.e. recipient countries) in 2011.

These discussions will not just concern the size of the 2014-20 EU budget but will also focus on how cuts in this budget should be made. It is unlikely that major cuts will occur in the Common Agricultural Policy (CAP) and agricultural subsidies, which take up nearly half of the EU budget. This is partly due to the political pressure of major players such as France, but there is also a more general political reason for this assumption. Agricultural subsidies have been an important source of money for farmers in the EU and have thus helped to retain the dominance of Christian Democracy within many EU states. With such parties presently dominant within most powerful EU states at the moment, we may expect that this status-quo will be preserved. It is therefore probable that the major cuts in the next EU budget will be made through reducing structural and cohesion funds. This money has been used to invest in the infrastructure of the poorer EU regions – first in Southern Europe and Ireland and more recently in CEE (although it should be noted that poorer regions in the richer countries have also been beneficiaries of these funds.) Cutting the structural and cohesion funds in the next budget will be most painfully felt in CEE where the EU's poorest regions are situated. Poland will be particularly affected, as it has so far been the largest recipient of EU funds. Also Romania and Bulgaria - the poorest EU countries - will particularly suffer as they are yet to receive any significant EU money after joining the EU, in 2007, after the previous EU budget had been set.


Following the collapse of Communism, there was no significant investment in the infrastructures of the CEE countries, with foreign investment normally connected to the sale of state assets. It was only after entry into the EU that some direct investment in these countries' infrastructures has occurred, although this has been at a much lower rate than during previous EU expansions. Throughout the past two decades the major Western European economies have made huge profits by monopolising sectors of the CEE economies, opening up these economies to western products and gaining access to a new pool of cheap labour. However, with the economic crisis having moved from the private to the public sphere, the era of austerity is now shifting from the national to the European level. This is undermining the economic basis for the project of European unity and convergence which can only survive if some mechanism of economic redistribution - counteracting the diverging effects of the free-market - is in place. The alternative is to widen divisions in Europe and give impetus to right-wing nationalist and populist forces throughout the continent.

Thursday, 25 November 2010

Some General Advice


If you want controversy in Poland then bring in General Wojciech Jaruzelski. Jaruzelski will be remembered as the man who introduced Martial Law in Poland in 1981 - which ended the stand off between the burgeoning Solidarity movement and the Communist government. The image of the dark spectacled General proclaiming Martial Law is one that remains in the collective memory in Poland and beyond. The repression of strikers and the opposition movement by the armed forces directly led to the deaths of 56 people.


President Bronisław Komorowski invited all the former Presidents and Prime Ministers from the past 20 years to a meeting of the Security Council on Wednesday, in order to advise him on December's visit of Russian President Dmitrij Miedwiediew to Poland. Jaruzelski - as the first President in post-communist Poland - was amongst the invited former heads of state and government. This has immediately caused an outcry from the conservative-right - inevitably from PiS, but also from some within PO. Jarosław Kaczyński has called the decision a disgrace and others have argued that it is disrespectful to those who fought against and suffered during Martial Law in Poland.


The invitation of Jaruzelski to the President's Palace raises a number of issues.


Firstly, and most controversially, is the historical assessment of Martial Law in Poland. The implementation of Martial Law in Poland, in December 1981, highlighted the bankruptcy of the Communist government at this time and the inbability of the party to govern in any consensual form. For this reason power was handed over to the army. This not only resulted in the repression and atomisation of the opposition movement but also ended any remaining hopes that communism could be reformed and democratised. However, the other aspect of these events, is what would have happened if Martial Law had not been called. One argument runs that if the Polish government had not implemented Martial Law at this time then the Soviet Army would almost certainly have intervened, which would have resulted in civil war. Now, as in all such historical debates, noone can be certain what would have happened if the Polish state had not acted as it did. However, what is known, is that the Polish population certainly do not agree with those who outright condemn Jaruzelski and the decision to bring in Martial Law.


The Pentor public opinion agency has run an opinion poll prior to the anniversary of the implementation of Martial Law every year since 1996. Throughout this time attitudes to this event have remained surprisingly consistent. The last opinion poll showed that 51% of society believe that the introduction of Martial Law was justified, against 30% who believe it was not. Those who believe that it was justified is higher amongst those who experienced the event. For example only 33% of those under 30 agree that it was justified against 66% of those aged between 40 and 49.


The second aspect is the role played by Jaruzelski during the negotiated ending of communism in Poland. The implementation of Martial Law showed how the system had lost its majority in society and that its power was steadily disintegrating. Once Gorbachev had given the green-light for countries within Central-Eastern Europe to leave the Eastern Bloc, then it was only a matter of time before the Polish People's Republic fell. Jaruzelski was instrumental in organising the Round Table talks with the opposition in 1989, which resulted in the open and free elections that led to the Solidarity movement taking power.


This negotiated hand-over of power was followed by the joint running of the country by a Solidarity government and President Jaruzelski for over a year. The first non-commnunist PM, Tadeusz Mazowiecki, introduced the thick-line policy that allowed those who had been involved in running the previous system to participate in public life in the new Third Republic. This meant that a section of the post-communist forces were able to reconstitute themselves, eventually leading to the creation of the SLD, which won goverment power twice during the 1990s.


It was this 'unholly alliance' (between sections of the opposition and the previous administration) that has been condemned by the conservative right and which gave rise to both PiS and PO. When in power PiS identified a network (układ) that supposedly ran through economic, political and social life. The failings of contemporary capitalism was blamed upon this układ and a campaign against the 'communist' and 'liberal' elites was waged. This was, at least temporarily, defeated once PO came into power in 2007. PO had found themsevles on the receiving end of the attacks by PiS (despite the fact that they initially supported the idea of creating a new Fourth Republic) and managed to win the support of a range of different social and political forces who feared the creeping authoritarianism of the PiS goverment.


The visit of Miedwiediew to Poland is an important step in the direction of normalisng relations between Poland and Russia, which had soured during the period of the PiS government, fuelled by the Bush administration's project of building a missile defense shield in Poland. The experience of the Smoleńsk tragedy has opened up new avenues for those hostile to Moscow to create contemporary consipiracy theories about Russian aggression against Poland. Thankfully the Polish population is generally more sobre and wise in its assessment of such events.

Tuesday, 23 November 2010

Local Election Results – All to Play for in 2011


Last weekend's local elections have produced no major shocks although they do suggest that the dominance of the two parties from the right – PO and PiS – is weakening.

For the fifth election in a row PO emerged as the strongest party, with PiS relegated to second place. However, as shown in the table below, PO 's vote fell considerably from the more than 40% it gained in the 2007 parliamentary elections, although they scored a higher vote than that achieved in the last local elections in 2006. Likewise, support for PiS has dropped by nearly 10% since the parliamentary elections and is slightly down from the last local elections. The major success story of the elections was PSL, who increased its vote significantly from the parliamentary elections and the last local elections. The SLD has kept its vote stable, managing to just cross the 15% mark and raise its support from 2006 and 2007.


As mentioned in previous posts Polish politics has been hegemonised by PO and PiS – two competing parties from the conservative right. Prior to this year's presidential elections it was widely predicted that the SLD could disappear from the political scene – but this election confirms that it has managed to stabilize itself as a party with significant although minority electoral support. Also in recent months PSL has seen itself fall below the 5% threshold in the opinion polls, and therefore this result represents a great success for the party and confirms it as a permanent player in Polish politics. It is interesting to note how SLD and PSL are the only two parties that have existed throughout the whole of the post-communist transition (although the SLD have undergone some cosmetic metamorphoses). Their continual existence is partly due to the fact that they are both 'successors' from parties that existed during communism and the structure, property, activists and local social support has maintained them throughout the past two decades. This is particularly evident in the case of PSL – who maintain a network and structure that is particularly beneficial in local elections.

Despite recent problems for PO and PiS it is clear that they will be competing for power in next year's parliamentary elections, with PSL and SLD vying to become the king-maker in the next coalition government. PiS in particular have suffered turbulent times in the past few weeks, with a number of MPs leaving the party and attempting to create a new political party. As well as seeing its overall vote decline, PiS was only able to win in two local districts – Podkarpackie and Lubelskie and Świętokrzyskie, bastions of PiS situated in the South-East of the country. Despite its defeats, the decline in support for PiS does not as yet represent a terminal decline for the party and its is still well placed to challenge PO in next year's parliamentary elections.


Although support for PO declined they again emerged from an election as the largest party and now hold power at a local, national, presidential and European level. However, the party is showing signs of strain as it comes towards the end of its first term in office and ahead of it lies a difficult year as it tries to steer a clear path towards the parliamentary elections without making too many unpopular decisions. It now seems unlikely that it will be able to win an overall majority at the next parliamentary elections and if it may find that it will be forced to form a coalition government with either PSL or SLD. The former has shown itself to be no pushover for PO in the present coalition government, as shown recently by the complaints made by the Minister of Labour Jolanta Fedak (from PSL) over the private pension system. This will cause more difficulties for PO, who are having to take a careful pragmatic approach to socio-economic policy, when many in the party would prefer it to deepen its neo-liberal course. Possible negotiations with the SLD would offer even more difficulties for PO and potentially open up divisions within PO. The choices facing the SLD after these elections will be discussed in the next post. One thing is clear: those who want to vote against PiS no longer have to feel that they must support PO. There are other options on offer.

A final point to consider is how the Presidents in most of the major cities (many of whom were independent candidates) were easily re-elected, often without the need of a second round. This phenomenon can largely be explained by the positive effect of EU money coming into Poland that has allowed local governments to carry out large investment programmes. Most of the EU funded investment projects have gone through local governments. Therefore local populations have seen the positive results of these, through new roads, renovated pavements, newly built stadiums, etc. This is a refreshing change to national politics that has been dominated by 'talking heads' arguing about issues generally removed from the everyday lives of 'ordinary citizens'. These EU funds have only been gained through local governments spending large sums themselves and partly funding these investment projects. It is of course imperative that this money is spent now, in order to fully realise the available EU money, which may not be available after 2013. For this reason it is irresponsible of the Finance Minister, Jacek Rostowski, to criticise local governments for allowing their debt to rise and targeting them as being responsible for the country's rising public debt. Such statements make a farce of PO's ludicrous election slogan: 'We Don't Do Politics' (Nie Róbmy Polityki).


Local and Parliamentary Elections (% Vote Cast)

2006 Local Elections

2007 Parliamentary Elections

2010 Local Elections

PO

27,8

41,51

31,4

PiS

25,08

32,11

23,11

SLD

14,25

13,15

15,3

PSL

13,24

8,91

15,7



Friday, 19 November 2010

A New Recomposition of Polish Politics?

For the past few years Polish politics has been dominated by two parties of the right: Citizens ' Platform (PO) and Law and Justice (PiS). Beyond this dominant dichotomy only two other parties are represented in parliament - the Peasant's Party (PSL) and the Democratic Left Alliance (SLD). This is a far cry from the 1990s when a plethora of political parties regularly appeared and dissapeared. Some have claimed that the division of Polish politics into two main competing blocs is a natural and healthy consolidation of the political scene - replicating that in the West. However, within the past few weeks divisions have emerged within both PO and PiS. Is this the beginning of a new recomposition of Polish politics?


The monopoly of politics between two parties of the right is an anomoly in Europe. In almost every other European country the political system is dominated by a party from the centre-left and centre-right. Polish politics is therefore closer to the situation in the USA, where there is no established social democratic party. However, at least some form of organised left - with social democratic leanings - exists within the American Democrats and this party can be classified as being liberal in its cultural outlook. In contrast Poland is dominated by two parties from the conservative right, with its more liberal version - PO - far removed from a party representing the liberal centre.


Now one may argue that this is reflective of Polish society and represents a population that is hostile to the left - especially one organisationally derived from the previous system. However, it should be remembered that the SLD were able to win political power just three years into the transition, that its candidate held the presidency for two terms (the legal limit) and that it gained over 40% of the vote to win power for a second time in 2001. It is not that the Polish electorate is averse to left parties - but that the experience of the second SLD government shattered the support for the left and thus allowed for the growth of the conservative right. The left is still paying a very high price for the policies carried out by the Leszek Miller government in 2001 - 2005.


In recent months there have been some signs that the dominance of PO and PiS in Poland is weakening. Firstly, the SLD's candidate - Grzegorz Napieralski - scored a relatively impressive 14% in the presidential elections signalling that the country's major centre-left party may at last be in a position to forge a new political fightback. Then in October, the prominent MP, Janusz Palikot, left PO and created a new political movement, designed to win the support of those opposed to the clericalisation of public life. Both of these events are significant but have so far had a limited impact. Although Palikot was able to mobilise impressive numbers for a rally in Warsaw he has as yet been unable to make any real political breakthrough and is scoring around 1% in the opinion polls. Likewise although Napieralski achieved success through underlining the independence of the left and challenging both PO and PiS, since the presidential elections he has not instigated any new political initiative that may help to unite and galvanise the wider left.


This month a new development has occurred after two leading MPs in PiS - Joanna Kluzik-Rostkowska and Elżbieta Jakubiak - were expelled from the party. Kluzik-Rostowska was responsible for running Jarosław Kaczyński's presidential campaign - which was based upon appealing for consensus and building upon the sympathy felt towards Kaczyński after the Smoleńsk tragedy. The campaign was run along lines of avoiding conflict and under the slogan of 'Poland is the Most Important' (Polska Jest Najważniejsza). The new dissidents from PiS have adopted this name for their new association and they have been joined by a handful of other PiS MPs. They seem destined to create a new political party, with the aim of replacing PiS as the main opposition to PO.


The space created for such a political development has been created by PiS deepening its conservative and clerical political trajectory after the presidential elections. The original success of PiS was achieved through uniting a range of political currents - within a broadly conservative political framework - and blaiming corruption within the political elite for the country's socio-economic problems. The party's new strategy threatens to reduce its base of support and make it likely that it will become more politically confrontational and extreme as it tries to secure it core political support. Kaczyński has moved to isolate and remove those who challenge this political position, and behind him lie the new leadership in waiting - presently serving their time in Brussels - of Zbigniew Ziobro and Jacek Kurski.

The new association (Polska Jest Najważniejsza - NJW) wants to repeat the relative success of PiS's presidential election campaign. It realises that if it wants to win the support of the majority it has to move beyond issues of Smoleńsk and the building of monuments in Warsaw and appeal to a wider constituency. All this is true. However, beyond this the new kids on the block don't really seem to have much to say. On the one hand they bemoan the inability of the government to get to grips with rising public debt and criticise PO from a liberal economic position. On the other hand, they offer vague notions of how Poland should become a 'pro-family' country - banal in the extreme.


The problem for NJW is that they want to create a new conservative right-wing party in a country where there is already an overabundance of such political forces. It is rather like bringing coal to the miners. However, what these events do show is that the hegemony of the conservative right in Poland is weakening and that it could be challenged if a real political alternative were to be offered.

Tuesday, 16 November 2010

The Lessons of 11 November

As noted in the previous blog post the counterdemonstration against the fascist march in Warsaw on 11 November was a great success and breakthrough for the anti-fascist movement in Poland. This was the largest demonstration against a fascist march that I can remember in Warsaw and it was successful in diverting the fascists from their planned route. However a number of repucussions have arisen from this march and a discussion is underway within the anti-fascist movement about what the best tactics are to take in future events. Without being privy to all of these discussions here are my views on this matter.

The anti-fascist movement managed to mobilise thousands of people, many of whom would not have been on such a demonstration before. The demonstrators attempted to block the march and prevent the fascists from demonstrating. Once the march had been diverted then the counterdemonstrators followed the march to its new route and again sought to block its path. This resulted in violent skirmishes between the demonstrators and with the police. A number of counterdemonstrators were arrested - amongst them the prominent campaigner against homophobia Robert Biedron. Biedron - who was observing the march - has since accused the police of beating him (you can show your support for him here).

The anti-fascist movement now faces a dilemna about what tactics it should adopt in the future. On the one hand it needs to build on the momentum gained from this event and try to make its events larger and broader. It has to show that it represents the vast marjority of people in Warsaw who are opposed to the fascists and repulsed by their presence on Warsaw's streets. However, many of these people will be put off from attending such demonstrations if they fear that they will degenerate into a violent battle between the two sides. The media has already begun to portray the counterdemonstrators as being comprised of 'extremists' and 'hooligans'. In turn the fascists are trying to show themselves as being the victims.
The movement has to work out a way of mobilising larger numbers than the fascists and not reducing itself to a small group of activists who are focussed soley on violently confronting the fascists. This is not a route to success and will reduce the anti-fascist majority to an isolated minority. It is in this context that the tactics for future marches should be worked out. One thing that was obvious from last weeks march was the poor level of stewarding and the often chaotic nature of the event. The organisers need to work out a clear strategy for these events and then enforce this through well organised and disciplined stewarding.

Last weeks event was a great success- the challenge now is to build a sustained and growing movement against fascism.

Thursday, 11 November 2010

No Pasaran!


Around Europe the 11th of November marks the end of the First World War and is a time to remember the millions of people who were killed in that senseless war. In Poland it also marks the date - in 1918 - when the country regained independence after centuries of division. Both of these events should be remembered and respected.


(Photo: Gazeta Wyborcza)

However it has also become a tradition on this day for extreme nationalists and fascists to stage a march through the streets of Warsaw. Although they claim not to be sympathisers of fascism or Nazism these events have consistently been accompanied by racist and fascist chanting and 'Hitler salutes'. The marches attract far-right fascist organisations that hold extreme racist and homophobic opinions. One of the main organisers of the march is the Radical Nationalist Group (Obóz Narodowo-Radykalny - ONR) - which takes its name from the pre-war fascist party in Poland.


In recent years the fascists have met little resistence when marching through the main streets of Warsaw. This has led to the revolting sight of fascists openly demonstrating in a city which had been occupied and destroyed in the Second World War by the German Nazis. Warsaw was the scene of some of the worst autrocities of the Second World War, with the Nazis creating a Ghetto where the Jewish population was situated before being transported to concentration camps.
This year the organisers claimed that there would be no fascist symbols on their demonstrations and that this was just a manifestation celebrating Poland's independence. A number of prominent right-wing politicians and publicists gave their support to the march in an attempt to give it some legitimacy.


However, in opposition a broad coalition to the fascists was created, with the aim of forming a blockade which would prevent the fascist march. This resulted in around 5,000 counter-demonstraters congregating in Warsaw. Present were a range of groups and organisations and a number of prominent politicians and journalists. The counterdemonstrators were successful in preventing the fascists from marching through the main streets of Warsaw. They were instead diverted through the backstreets and under police protection the fascists completed their march.


This demonstration showed that the only way to counterpose such marches is by mobilising large numbers of people who are repulsed by the presence of fascists on the streets of Poland's capital. Hopefully a momentum will have been gained from this that will help make future events larger and put pressure on the authorities to prevent fascist marches. In the words of Martin Luther King - 'In Order For Evil To Triumph, Good People Do Nothing'.


Monday, 8 November 2010

Another Wrocław is Possible!


For too long now there has been no real choice for the left in Poland's elections. This has meant that the left electorate has had to support candidates with whom they have no real affiliation or abstain altogether from the electoral process. This will be the case for large sections of the left in the forthcoming local elections. However, in Wrocław some progress has been made in creating a broad coalition that includes the Democratic Left Alliance, the Greens and some genuine independent activists from the left.

The best example of this is the candidacy of Michał Syska. Syska has been a long-time activist from the social democratic left in Poland. Although presently not a member of a party, Syska is a leading member of Krytyka Polityczna and is also director of the left think-tank Ośrodek Myśli Społecznej im. F. Lassalle, which has organised a number of important events around issues such as the privatisation of hospitals and the commercialisation of education. Another major iniative of this group has been to draw up a coherent left-green programme for Wrocław ('Another Wrocław is Possible') and organise a conference around this.


Syska has managed to present a clear left programme for Wrocław, while focussing on local issues. His manifesto includes introducing medical care into schools, providing extra-curricular activies for school children; building a proper cycle path networ in the city, opposing the present administration's promotion of private nurseries and supporting the development of the city's infrastructure for the elderly. Although Wrocław is one of the country's fastest growing cities, Syska has pointed out how it has become a place of huge contrasts and social divisions. Away from the pituresque old-town and market square lie areas of large poverty and social neglect. Public services (such as nurseries and hospitals) are often neglected and subordinated to private developments.

Michał Syska is standing for local councillor on a left-green platform that includes supporting the economic development of the city, whilst protecting public services and creating a city that serves the majority and not the privelleged few. There have been too few opporunities in recent years to fully give one's support to candidates in elections. But this is one of them. Powodzenia Michał, trzymam kciuki!

Tuesday, 2 November 2010

The Hidden Games of EU Politics


EU summits often seem to be more about show than substance. The latest meeting of EU leaders last week was no exception, despite the fact that some crucial decisions had been taken.


The headlines in the UK concerned PM David Cameron's attempt to portray himself as the latest reincarnation of St. George and slay the dragons of the EU bureaucracy who wanted to raise EU spending by 6%. He rode back accross the channel victorious, announcing that EU spending would now only go up by 2.9%. Although he had previously stated that EU expenditure should not go up at all - this was announced as a great success by the British government. The absurdity of the theatre is of course that this had all been agreed beforehand and the show was for the cameras. Cameron has been criticised - both by the eurosceptics in his own party and by the Labour Party - for agreeing to any rise in EU spending. The argument runs that the EU should be cutting its spending at a time when national governments are introducing austerity programmes.

The other story of the summit involved the German Chancellor, Angela Merkel, pushing forward her policy of introducing severe punishments for governments breaching the eurozone's strict budget rules. In recent months resentment in Germany has grown, after the EU bailed out the Greek banks. The populist argument in the richer states is that the poorer countries in the south were prolifigate with their spending and then came cap in hand to the EU once it all went belly-up. Of course they prefer not to mention that one of the first countries to break the Growth and Stability Pact guidelines was Germany nor consider how the eurozone has provided the Germany ecnoomy with an enlarged market to export its goods to and one in which countries are unable to devalue their currencies. The huge German trade surplus is one indicator of how the country has benefited from being inside the eurozone.

Merkel has proposed that both economic and political sanctions, that punish those eurozone countries that cross the set limits on budget deficits and public debt, should come into effect from 2012. Up till now the rules have largely been ignored and this is therefore an attempt to enforce restrictive budgetary policies accross the eurozone. In reality - considering the state of most government budgets following the financial crisis - this would be a new means of enforcing austerity in Europe.

The Polish government has largely supported the proposals of Merkel (although it has expressed some scepticism about introducing political sanctions). The Polish PM, Donald Tusk, stated: "We favour the changes to the treaty ..... Poland will certainly not block changes that will increase fiscal discipline in the EU as a whole."

Of course it is quite easy for the Polish government to agree to such proposals as Poland presently lies outside of the eurozone. 2015 is now being talked about in Poland as the date that the country could join the eurozone - after the government postponed plans to adopt the euro in 2012 in the wake of the global economic crisis. Up until now, any country wishing to join the eurozone has had to meet the strict criteria laid out in the Growth and Stability pact. Only once inside the eurozone have countries been able to adopt more flexible budgetary policies. Therefore the Polish government has figured that it can support such restrictive rules as they will not immediately affect them directly.

However, the Polish government could find that these new rules are detrimental to its interests, as negotiations begin in 2011 around the next EU budget for 2014 - 2020 (the present budget runs from 2007 - 2013.) As previously shown in this blog, countries such as Poland have benefited from the inflow of funds and subsidies from the EU. This has helped to stave off a recession in Poland, through maintaining investment in the economy, which has been beneficial to the whole EU economy. If the eurozone countries are compelled to further bring down their budget deficits and public debt, then there will be less funds available for this budget. It is likely that the richer countries in particular will be looking to reduce their payments into the EU budget and attempting to gain more of these funds themselves. Unsurpisingly, the British government has recently started lobbying for the next EU budget to be cut, and these new rules could mean that other governments will be more receptive to such proposals.

Most of the negotiations and discussions that affect the lives of Europeans are carried out behind closed doors, with the public just seeing the gamesmanship and backslapping of the various politicians at EU summits. The undemocratic nature of the EU helps to build resentment towards it. However, while some on the left in Western Europe may see the EU as a vehicle for neo-liberal reform, it is often perceived differently in the East. The opening of European labour markets and the inflow of funds through the cohesions funds, has partially counteracted the negative effects of the economic transition, which opened these countries up to global capitalism. The European economy will only be able to emerge strongly out of the present crisis if it pools its resources and embarks on a European wide investment programme to create jobs and promote cohesive growth. Unfortunately, the present proposals of Europe's leaders is pushing it in the opposite direction.

Wednesday, 27 October 2010

And What if the People Don't Want Reform?


Witold Gadomski – who writes for the daily Gazeta Wyborcza - is one of Poland's leading economic commentators and a consistent defender of neo-liberal orthodoxy. Yet, despite his clear ideological convictions, his articles are always worth reading as he is an incisive analyst, who is prepared to tackle complicated and controversial issues head-on. His article in last weekend's Gazeta Wyborcza ('And what if the electorate doesn't want reform?') is a case in point. In this article Gadomski compares the current situation in France and the UK as a means to analyse the policies being pursued by the governments in Poland and Hungary.


His thesis is simple: public finances and debt have spiralled out of control and if governments do not start drastically reducing spending then their countries will soon face economic ruin. This challenge has been taken up by the governments of France and Britain. However, while in France the trade unions have responded by paralysing the country through strikes, demonstrations and blockades, Gadomski notes, rather prematurely, that the response to Cameron's announcement of austerity in the UK has been relatively mooted.


Gadomski concludes that Cameron offers the best example of how to carry through painful economic reforms. He argues that Cameron was clear about his intentions prior to the election and that he then began introducing them at the beginning of his term in office. Gadomski therefore predicts that by the time of the next election, the pain of taking the medicine will have worn off and its positive effects begun to take effect.

There are two obvious errors in this analysis. Firstly is that Cameron's Conservative Party does not govern alone in Britain, but is in a coalition government with the Liberal Democrats. The Tories were unable to win an electoral mandate for their austerity programme and the Liberals did not include such drastic spending cuts in their manifesto. Consequently the Liberal-Democrats have clearly broken from their election pledges on issues such as student fees. Secondly, the assumption that such spending cuts will both bring down public debt and reignite the British economy is highly dubious – as clearly shown in the example of Ireland. Figures have just been released in the UK showing that the higher than expected economic growth of 0.8% in the last quarter mainly came from an increase in construction, spurred by public spending. It is likely that the Tories' policy of rapidly retrenching such spending will depress the recovery.


Gadomski then turns his attention to the situation in Poland and Hungary. They are both governed by right-wing parties, which – in the opinion of Gadomski - have been reluctant to carry through spending cuts. Gadomski describes how the ruling Fidesz party came into government in the wake of the collapse of the Socialist led government, following the outbreak of the financial crisis. Shortly between the ending of the Socialist led government and the election of Fidesz, a non-party administration introduced a series of severe spending cuts. Fidesz won the election both promising to improve public finances and reduce the scale of spending cuts . In Poland, Citizens' Platform (PO) had previously (in 2005) promised a set of extensive liberal reforms, such as introducing a 15% flat tax rate for income tax, business tax and VAT. By the time it won power in 2007, the party had toned down its economic liberalism and even promised to raise public sector wages.

The message of Gadomski's article is that these governments should speed up their efforts to cut public spending. In Hungary the government has recently been elected and therefore Gadomski argues it is in a particularly good political position to do this. However, the Hungarian government has already announced large spending cuts – in order to meet its debt repayments to the IMF (Hungary was the first country to turn to the IMF in the wake of the financial crisis). The government has already introduced a 29-point saving plan that includes cutting and freezing the salaries of public administration workers; cutting sick benefits by 10% and increasing VAT to 25%. Presumably Gadomski would also welcome the government's decision to introduce a flat-income tax rate - although quite how this will help public finances is unclear.


In Poland the situation is different. The next parliamentary elections are in 2011 and liberal commentators such as Gadomski would like PO to speed up its austerity measures now and include a clear programme for reform in its next manifesto. Those in government are reluctant to do this, with the Polish Finance Minister, Jacek Rostowski, quoted in the article as saying: 'what is the sense in carrying out reform if it will just lead to the collapse of the government and our successors will resign from it?' Prior to being in government Rostowski was a clear supporter of speeding up liberal economic reforms. Gadomski bemoans the fact that once in government he has become more concerned with political-economy, than with the pure world of economics. However, once again, it is not the case that the Polish government is not carrying through liberal economic reforms (as noted in this blog). These are just never enough for the likes of Gadomski.


It seems likely that the PO government will follow the Cameron example half-way. He will diverge from the British Conservative Party by not clearly laying out a programme of severe cuts before the election. However, it should be expected that soon after forming a government (if indeed it achieves this) PO will then look to implement its intended reforms rapidly, especially as they have their own man now safely encossed in the Presidential Palace. The left should be aware of this and make its opposition to it a centre-point of its election campaign in 2011 – especially as it is likely that PO will be seeking to form a coalition government with the Democratic Left Alliance (SLD) if it does not achieve an overall majority. SLD leader Grzegorz Napieralski should seriously consider the consequences of such temptations and ponder whether he really wants to end up as a Polish Nick Clegg.


Another element of Gadomski's article is his criticism of the Polish and Hungarian Prime Ministers – Viktor Orban and Donald Tusk – for their attitudes towards foreign capital. He notes how these leaders have begun to build upon dissatisfaction within their societies towards the actions and dominance of foreign private capital in their countries. Particularly disconcerting for Gadomski, is Orban's proposal to introduce a 'crisis tax' on banks, the energy sector, telecommunications and trade, which would hit foreign capital the hardest. Concurrently, Gadomski accuses Tusk of playing games of 'economic patriotism' – through supporting the creation of 'national champions' through proposing to create state conglomerates in some sectors (such as energy and finance) to compete with foreign capital.


The reaction of neo-liberal commentators and lobby-groups to any recommendations limiting the power of foreign capital is revealing. For example, in recent months there has been some discussion in Poland about the bank PKO-BP – in which the state has a majority share – buying the fourth largest bank in Poland BZ WBK, which is owned by the Irish investment group AB. This would be a reverse from what occured in Polish banking throughout the transition, which resulted in over 80% of all banking assets in the country being held by foreign banks. However, even this modest step in the other direction, which would help to consolidate a domestic banking system in Poland, has been fiercely denounced by the usual sources. The situation in Hungary is even more pronounced – where foreign capital was largely given a green light in the privatisation process. The country first suffered a financial crisis in 1998, after a flight of capital out of the country revealed the vulnerability of Hungary in the global economy. With Hungary severely hit by the global financial crisis in 2008 (suffering its third economic crisis in 20 years), hostility has grown towards the role of foreign capital in the region.

There is a danger that politicians such as Orban will pursue populist nationalist policies in order to divert attention away from the real causes and effects of the economic crisis. It is certainly not the case that domestic captial is always better than foreign capital - as shown during the recent catastrophic leekage of toxic sludge from an aluminium plant, which was the result of malpractices carried out by a privatised company with domestic owners. However, what current events in Hungary and Poland are showing is that the previous course of capitalist development in Central-Eastern Europe has run its course. This was built upon creating the most favourable conditions for private foreign capital in the region. However, the global financial crisis has meant that there is far less foreign private capital coming into CEE - with FDI falling by a half in Poland alone between 2007 and 2009. The countries in CEE that were most severely hit by the financial crisis tended to be small, financialised economies that were most reliant upon foreign capital (e.g the Baltic States and Hungary). Therefore other sources of capital accumulation will have to be sought. While private FDI has partly been replaced by EU money (which in contrast to private capital has actually been used to help build up the infrastructures of these countries) there is also pressure in these countries for their own domestic capital base to be developed.

Gadomski worries that governments in Hungary and Poland are unwilling to take the 'difficult' decisions regarding austerity measures. He also frets that these administrations are introducing policies that will act against foreign capital in the region. He is concerned that the objective laws of economics - that work so well on paper - are being hampered by the distractions of real-politik and the pressures of electorates. Without stating it, Gadomski is repeating the long-held concern, of many liberals and conservatives alike, that the social-levelling concerns of populations, expressed in the ballot box, undermine the rational workings of the economy. Democracy really can be such a pest sometimes.

Monday, 25 October 2010

The Scandal of Private Pensions

Here's a game you could play. Find a member of Poland's urban middle class, engage him/her in conversation and then mention the word ZUS (an acronym for Poland's social insurance system – Zakład Ubezpieczeń Społecznych). The reaction will almost always be the same: a tirade of expletives and a bemoaning of how they have to pay X amount every month and yet get nothing in return – perhaps accompanied by some vague theories about the system's inefficiency and then a joke about the people who work there.


While you have this person's ear you could then extend the game. This time utter the acronym OFE (which stands for Poland's private pension schemes – Otwarty Fundusz Emerytalny). This time the reaction is less certain. A couple of years ago you would almost certainly have received some positive and optimistic assessments of these schemes. After all these were launched in 1999, by the then Finance Minister Leszek Balcerowicz, amongst great fanfare. Advertisements appeared showing healthy looking pensioners on exotic holidays wearing Hawaiian shirts. The intended message was that we were breaking from the inefficient state system of the past and allowing people's funds to be invested in a growing stock market. The future was bright, the future was private pensions. Nowadays things do not look so rosy.

Earlier this year the reality of the private pension system was revealed – as the first recipients of these private pensions came of age. However, instead of booking their foreign holidays, these new pensioners faced up to the reality of living their retirement in financial hardship. The first OFE payments to these new pensioners equalled just ZL23 a month! Now of course we would expect these pensions to be lower than those in the future as they had only been paying for around 10 years. But 23 zloty!!! This news has been accompanied by a growing realisation that these private pensions are in-fact elaborate schemes of using tax-payers and public money to swell the bank-accounts of private investors. Let's rewind a little and remind ourselves of how this system came about.


The OFE pensions' system was created during the term of the right-wing coalition government led by Jerzy Buzek between 1997 and 2001. Buzek now spends his time employed as head of the European Parliament and advising Europeans that they should work longer and harder. His government was marked for introducing a series of market reforms in the public sector and speeding up the privatisation of the Polish economy. This resulted in a slump in economic growth and unemployment virtually doubling to nearly 20%. He was rewarded not just with electoral defeat but by his political grouping being removed completely from parliament and then disappearing all-together.


One of his major reforms was to introduce a so-called 'second-pillar' of the national pension system. This in effect meant creating a private pension fund into which taxpayers are compelled to pay into and whose funds are invested on the stock-market – thus ensuring growing pensions for all (the hen really would lay golden eggs.) Now here's the puzzle. Perhaps it would be a good idea to invest part of the state pension money in the stock-market in an attempt to valorise the pensions. This is of course a risky business – but some limited and safeguarded investments could be worth doing. Surely however the government could do this themselves – even paying some bright young things to advise them and oversee these investments. No. What we needed was to pass these funds over to private pension companies who we would then pay large sums in order to do this for us.


In 2009 it is estimated that the private pension companies in Poland made a clear profit of around $766m, from an investment of around $3bn (i.e. with a profit rate of 25%). Nice work if you can get it. Furthermore ZUS has actually paid more than ZL140m of its own money into OFE, since the funds were create. In the meantime poor ZUS has had to continue paying its usual 100% pension payments but has been starved of funds that are being paid into these private pension funds. This has led to ZUS having to borrow more money to service these debts and thus sinking further into debt. The sting in the tale is that ZUS has often turned to these private pension companies to borrow money from.


Therefore Poland's growing public debt is being increased partly due to the creation of these private pension funds. During the eleven years since the formation of OFE, Polish public debt has risen by around 13% of GDP. Prof. Leokadia Oreziak estimates that the pension system built around OFE has contributed to public debt growing by around 2% of GDP annually. This situation has not only been noticed by critics of the system but also by some in the government. This summer the Finance Minister Jacek Rostowski and Minister of Labour Jolanta Fedak proposed that part of the OFE payments be taken from OFE and given back to ZUS. Fedak suggested that individuals should be allowed to resign from OFE and pay fully into ZUS.


Returning from holiday PM Donald Tusk took on the issue, admitting that the system did not benefit pensioners. However, the lobby group around these institutions is strong in Poland and it has a large influence within the government. The government ended up by deciding to create two forms of investment funds through OFE. One would be for those approaching pension age and would involve more conservative investments; whilst the other would be for younger people which would take more risky investments. There has also been a new regulation introduced stating that the fees charged by the private pension companies on payments cannot exceed 2.1% and 2.8% respectively (currently they equal 3.5%). However, a new extra fee of 2% has been added, which has been termed a 'solidarity charge' (sic).


The result of these new rules (pushed by the government's 'social liberal' Michal Boni) is that pensions are even more reliant upon the financial markets. According to present estimates pensions could end up half the worth of those existent when the system was created over a decade ago. Even the most optimistic scenarios show that pensions will be lower than those given previously. If there were to be another financial crisis in the future then pensions in Poland could be reduced to a level where even the most basic needs of pensioners cannot be met.


Pressure is now coming from the lobby groups and the media (loudest of course from Balcerowicz who set up the OFE) for the government to act and deal with Poland's growing public debt. The proposals to cut public spending and raise VAT are being accompanied by louder calls to increase the retirement age. Presently French society is in revolt over Sarkozy's proposal to raise the retirement age to 62. In Poland some are calling for it to go up to 67 or 68. All this in a nation where the average life-expectancy is 71.3! I guess that Hawaiian shirt won't be necessary after all.


References:


'Boni: Emerytury jeszcze bardziej uzaleznic od kaprysow rynkun'


Dariusz Zalega 'OFE-kracja zadłuża Polskę' , Le Monde Diplomatique Edycja Polska October 2010-10-25


'Emerytalne mydlenie oczu', TVP

Wednesday, 20 October 2010

Politics of Hate

Polish politics has entered a dangerous spiral of aggression and conflict. Yesterday afternoon a man entered the offices of the Law and Justice Party (PiS) in the city of Łódż and shot dead one man (assistant to the MEP Janusz Wojciechowski) and seriously injured another (assistant to the MP Jarosław Jagiello). After being arrested the attacker shouted that he wanted to kill PiS leader Jarosław Kaczyński and that he hated PiS.

Now this all could be the actions of an insane attacker and will perhaps be remembered as a tragic but isolated incident - let's hope so. However, whatever the mental state of the perpetuator, this crime seems to be the culmination of a worrying trend in Polish politics behind which deep social tensions and divisions lie.

Within less than an hour of the attack PiS leader Jaroslaw Kaczyński had already gone on the offensive. He stated that the attack was “the result of the great campaign of hatred against his party pursued by the ruling party Civic Platform (PO) and its leader, Prime Minister Donald Tusk" Meanwhile PM Donald Tusk called for calm, stating that 'the most important thing is joint actions of all Poles and different political groups towards extinguishing the atmosphere of conflict and anger'

It is certainly the utmost political cynicism, and unfortunately true to form, for Kaczyński to use such a tragic incident to build his own political capital. It is also breathtakingly hypocritical for such a politician to deride others for using the language of political aggression. After all this is a political leader who divided society and attacked his political opponents whilst in power - often using the institutions of the state (including those he created) against his political enemies. It was whilst Kaczyński was in power that the SLD MP Barbara Blida died, (ostensibly by suicide but in very unclear circumstances) whilst being visited by the Internal Security Agency (ABW). I could go on and those who remember the period of the PiS government will recall the atmosphere of political conflict and the bending of the standards of democratic practice that existed during this time. All this however does not tell the whole story.

Firstly, PO was partly responsible and have certainly been the beneficiaries of the rise of PiS and the political move to the right in Poland. One of the PiS government's great projects was its failed attempt to create a new constitution and build a new Fourth Republic. This project was actually first mooted by politicians from PO and Tusk built up PO as a party fighting against the 'corrupt' Third Republic. It should also be remembered that prior to the 2005 parliamentary elections it was widely predicted that PO would form a government with PiS and that their two-thirds majority would allow the coalition government to drive through their constitutional reforms. All of this was derailed when PiS unexpectedly emerged as the largest party in these elections and then built a coalition government with the nationalist and agrarian populist parties. The major political divide that has dominated politics ever since was formed at this moment.
Yesterday Kaczyński claimed that the period of political aggression was started when Tusk called the supporters of PiS 'Mohair Berets' (Moherowe Berety) - that refers to the hats which elderly women at Church are supposed to favour. Now once again Kaczyński is wildly exaggerating and re-writing history by forgetting his own dominant role in building political conflict and aggression in Poland. However, this turn of phrase used by Tusk was one part of a verbal political war not just between political parties but amongst different social layers and generations. Such phrases have become commonly used by those on either side to deride the other and create simplified characateurs of different social groups.

In order to build their political position as the dominant party in Polish politics PO have had to repeat and exaggerate the threat of PiS and demonise its leaders and supporters. PO politicians have painted PiS as being a quasi-fascist party that endangers democracy and that only Tusk and his team are preventing the country from falling into the abyss. On the other side PiS now taint PO as a party and government that threatens Poland's very existence as an independent nation. The political differences between the two parties - on matters of real substance - are in reality minimal. Rather than offer a clear political alternative to PiS and the conservative right PO can only use its marketing machine to show PiS as being the enemies of reason and itself as the representatives of rationality and progress.

Behind this lie deep social divisions and frustrations. I remember watching a political discussion programme shortly before the Presidential elections on PO's favourite private TV station TVN. One of the guests was a typical representative of Poland's liberal elite. She talked coherently and passionately about wanting to live in a 'normal' country and seemed to yearn for life in a stable western liberal democracy (scarce as they are to find nowadays.) One comment from her sticks in my mind. When discussing PiS and Kaczyński she blurted out that she wishes they would just go away and disappear. It was as if her life would be so much more bearable if these annoyances simply ceased to exist. The problem is however that the issue of Kaczyński and PiS do not concern the thoughts of extreme individuals or extroverts on the margins. Rather they express - in a very confused and often regressive form - the social reality of marginalisation that millions find themselves in today.

Of course this woman and her friends may be able to comfort themselves by increasingly pivatising their lives, living within gated communities, and existing in a cultural and social ghetto of privilege (of course with a progressive liberal tinge.) But beyond these secure walls lives a wider society. With little or no political choice on offer that can actually change the lives of the majority, then cultural conflict has become the order of the day. The demonstrations outside the presidential palace grew louder and more aggressive and their counter-demonstrators more vocal and direct. The political slanging matches between the two political 'sides' - talking about things that seem so removed from one's everyday life that it is almost surreal - have become deafening to the point that they can no longer be listened to. And now this internal phoney war has its first victim. Alongside the victims of the accident in Smoleńsk some new martyrs have been created. Let's hope they are the last.